David Kingman examines the latest research into the distribution of wealth and asset ownership in the UK, which shows a growing intergenerational divide between young people and older households
The total combined value of Britain’s net household wealth – which includes everything owned by British households minus any debt which is secured against it – has nearly doubled over the past 10 years to reach £9.1 trillion in 2014, according to a new study from Lloyd’s Bank Private Banking that was reported in The Independent.
This study also demonstrated the extremely skewed distribution of this wealth, which puts the intergenerational divide between younger and older members of the population into sharp relief.
The average value of personal assets rose by £1.5 trillion in 2014, the biggest increase since records began in 2001. Almost half a billion of this increase was caused by rising house prices, which increased by 9% last year.
A remarkable finding from the research was that two-thirds of all British households actually hold no positive net financial wealth at all; in effect, the entire £9.1 trillion worth of positive net financial wealth is owned by just the richest 34% of households. This stark fact alone highlights the depth of Britain’s social inequalities.
Although many people may be shocked to learn that such a wealth gap persists in modern Britain, the problem of overall inequality has at least been relatively well publicised by a number of charities and campaigns over recent years. In contrast, the gap between younger and older households has received much less attention, yet this is also glaring.
Markus Stadlmann, the chief executive of Lloyds Bank Private Banking, specifically pointed to the growing number of older households as one of the major factors driving the accumulation of personal wealth. The Independent cited figures from the ONS in its report on this research which show that 75% of those aged 50 to 65 own their own homes – meaning they have benefited from the rapid increase in house prices mentioned above – whereas among 24 to 35 year olds the figure falls to just 40%. In addition to benefiting from higher levels of home ownership than today’s young people, older households are also much more likely to have valuable occupational pension pots which are often no longer available to subsequent generations.
Taken together, pensions and housing are the two most valuable forms of personal asset owned by the typical person, as they form the two main opportunities for someone to build up a significant level of asset wealth during their lifetime. If today’s young people are systematically failing to benefit from both housing and pensions then that raises profound questions about the future distribution of wealth within Britain’s economy.
Worsening social divides?
There is now a significant body of evidence which suggests that today’s young people and subsequent generations will not be able to build up the levels of housing and pension wealth enjoyed by their parents’ and grandparents’ generations. One of the biggest impacts of this will be to exacerbate Britain’s overall level of wealth inequality, because it means that coming from a family where you stand to inherit significant asset wealth will matter more than ever before.
Professor John Hills, an expert in social inequalities at the London School of Economics, highlighted this point in the Independent article. His research shows that the average member of today’s younger generation would need to be able to save £33 every day for the next 30 years in order to match the level of wealth accumulated by their parents’ generation:
“Some of that generation eventually inherit from the more prosperous members of the older generation. But for those who cannot look forward to that assistance, building up the kind of wealth that many older people take for granted looks hopeless. Given how much bigger the wealth gap now is compared to annual incomes, the growing importance of who you might get help from acts against social mobility.”
Clearly, any serious attempt to address social inequality will have to also look at the growing wealth gap between young and old as well.