New Year’s Resolution Foundation: The Wealth Gap

Depressing news from the Resolution Foundation shows that the Rich Get Richer, like it’s the law of the land.

This post was originally scheduled for the Summer when the report was published but life got in the way. It was published in the Guardian as “UK wealth gap widens in pandemic as richest get £50,000 windfall“ and in the Telegraph as “Everyone deserving got richer from Covid and that’s a good thing”. There’s other articles on the Wealth Gap that are worth reading including this one.

You can read the full report by Jack Leslie & Krishan Shah from the Resolution Foundation called wittily “(Wealth) gap year – The impact of the coronavirus crisis on UK household wealth” here.

If everything is like how my own net worth has performed since July, the figures now are even worse (or better depending on your outlook).

Same Virus, Different Outcomes

The virus has been pretty indiscriminate in who it infects, makes sick and kills. We were all locked down and we are all faced with the same restrictions on our liberties for the collective good. It’s just that if you were well-off to begin with at the start of the pandemic, you are even more well-off now. You can avoid many risks of catching the virus by working from home, ordering what you need through Amazon, relaxing in your garden instead of stewing in a flat and something as simple as owning a car means you can avoid crowds on buses and trains. Your portfolio may also have been turbo-boosted with massive returns experienced – I know that our net worth has jumped massively in the same time, by such a margin that it would require rescaling the graph.

Contrast that with those who are crammed into rented properties without outdoor space, that need the run the gauntlet to get to work and who’s income is finely balanced with their outgoings and have no private savings worth speaking about. And the coming inflation wave is going to make life a lot more difficult for them.

The Wealth Gap

Covid Inflation

We’ve been seeing a lot of inflation recently, inflation is above 5% for the first time in almost 20 years and people are concerned. However, I contend that the very people who are worried about inflation are those that have nothing to actually complain about. Falling yields has benefitted older, richer people for a generation or more. You don’t ever read any news articles worrying about house price inflation being 5% – actually come again, maybe you’d see it if house price inflation was predicted to fall from 10% to 5% – then the Express would be clutching the pearls.

Express Wishes

This is not to say that either inflation isn’t real or that it isn’t going to hurt a lot of people – but if you’ve benefitted to the tune of tens of thousands of pounds a year from the pandemic and your household spending is only £40,000 a year, then 5% inflation is £2,000. That puts things in perspective, doesnt it?

Justifying our wealth gap

Looking at the deciles of wealth in the graph above, this Gentleman’s Family are securely within between the 9th & 10th decline. That’s not come about by accident and I made sacrifices along the way to get here, as too did the Lady.

It would be easy to say “don’t hate the player, hate the game”, and maybe that’s what I am saying. I’m aware of four things that put our financial position into perspective:

  1. I had a privileged upbringing where I had a great education and support from parents who cared for us, yet I wasn’t born with a silver spoon in my mouth and haven’t relied on the BOMAD to fund my lifestyle.
  2. I have had a good career with decent earnings, generous pension and continuous employment, yet never earned megabucks, didn’t get that lucky in jobs nor did I get massive promotions.
  3. I’ve done alright with our money and we have more net worth now than money we’ve ever earned, yet I didn’t get lucky with Bitcoin, Tesla, Pokémon or penny stocks.
  4. Our family spending is high with high travel, lifestyle and childcare costs, yet every penny is a prisoner, I look like a dishevelled pauper and our car is neither new nor luxurious.

The simple message of work hard, save money, invest and wait ends up working eventually – maybe not right away and I’ve made mistakes along the way – but “Victory is Inevitable”  as the Escape Artist says. 

However, I am not so sure anymore about that. I believe that the intergenerational wealth gap will turn the young and poor into expendable service providers for the old and rich. How fair is it that if you are in a care home you get to keep your home, while the “hero” on just about minimum wage can’t afford a 1-bed flat anywhere nearby?

Policy Change Coming?

There is an opportunity to level the playing field with tax changes in the future but I really don’t think that the government (Tory or otherwise) have the stomach to do it. Simple things like tax all income the same – why should money from working be taxed MORE than that from idle speculation or rent seeking? But when Sunak increased National Insurance for 2022 onwards in the last budget it was a direct tax on the young and productive to pay for the old and idle.

That’s not going to narrow any gap and it won’t even pay for the NHS or Social Care (as it proports to do).

End Game?

If the rich get richer by 10% per annum and the poor stay the same (because they’ve got not money) then after a number of years you get a ridiculous situation whereby the old own everything (like property). We can’t have that because it is a massive misallocation of resources and long term – we’ll all end up poorer (just some will be poorer than others).

Finally, I’d like to point out that not everyone who is old is rich and when it comes to inequality – the old you are the wider the gulf between financial winners and losers. I am acutely aware that  for my age (on the cusp of entering my 5th decade) I and my family are doing alright – I still feel for those who have been left behind or choose more noble but lesser paying professions or who’ve had higher hurdles to overcome in life and less of a head start than I.

Thanks, GFF

Have a great Xmas and a Happy New Year!

New Year’s Resolution Foundation: The Wealth Gap