The past 10 years have seen the most exuberant period of wealth creation in human history. The world now has 7.2 million people with over $1m to their name. Add to these around 500 billionaires and the power of Western economies to churn out growth seems inexhaustible.
Yet, even within the developed world, the fruits of this growth have not been distributed evenly. As overall wealth has increased, so has wealth inequality and, perhaps more worryingly, the number of people with no wealth. We are in danger of creating a world with a stark divide between the haves and have-nots.
In the immediate period following the Second World War, there was a gradual reduction in wealth inequality, driven by a range of factors including the expansion of home ownership. But since the mid-1970s, inequalities have increased rapidly until stabilising at a high level in the 1990s. Worryingly, there is recent evidence that the gap between the rich and poor is beginning to widen further.
In 1998, the richest 10 per cent of the population owned half of all personal wealth while the poorest half owned only 6 per cent. To put this in more concrete terms, the richest two million households in the UK have personal wealth totalling over £1,000bn while the poorest 12 million have total wealth of around £150m. This means that wealth distribution is far more unequal than that of income. However, wealth holdings are increasingly reinforcing income inequality as income from assets plays a bigger role in shaping overall income distribution.
Evidence indicates that inequality appears to be increasing. The richest 1 per cent of the population owned 23 per cent of personal wealth in 1998, up from 17 per cent a decade earlier in 1988. The super-rich are getting richer. This has been matched (although not at such an alarming rate) by the increased wealth of the middle classes and decreased wealth among people on lower incomes.
Wealth inequality is not the only important issue. A related but equally salient concern surrounds the rising number of people who are wealth-excluded. The proportion of households without any wealth doubled from 5 to 10 per cent between 1979 and 1996. The levels of such asset exclusion are even more acute for younger age groups.
Perhaps not surprisingly, the households with no assets are concentrated almost exclusively in lower-income groups. Around a third of households in the lowest 10 per cent of income distribution have no wealth or assets at all. In stark contrast, virtually all people in the top half of income distribution have some assets.
It is likely that, without action, these trends will continue and even worsen. As new homeowners pass down their housing wealth to future generations, the divide between people with wealth and those without will increase. Those people who have been excluded from accumulating even modest amounts of wealth will continue to be excluded and this exclusion will pass down the generations.
Without policy intervention, the future could see an increasingly dramatic divide between the haves and have-nots.
It seems irrefutable that the spoils of wealth creation are not benefiting all but should we be worried about increased wealth inequality? There are a number of reasons why we should.
Perhaps the most important reason is because, without tackling asset exclusion and inequality, we will never genuinely achieve equality of opportunity. Having some savings or some capital is increasingly important in an uncertain world to enable individuals to take chances to improve their lives. It also gives people a sense of security and autonomy which will allow them to think in the long term and plan for their futures. Wealth often opens opportunities which a flow of income alone will not make possible for people.
Without Government action, there is a very real danger that we will live in a society with a stark divide between the haves and have-nots. This could have important implications for our children's opportunities and life chances.
Policymakers need to be bold about introducing policies which recognise this danger and attempt to ameliorate wealth inequality and to end wealth exclusion. This means not simply continuing and enhancing established policies but also finding new ways to support asset ownership and wealth accumulation among the least well off in society.
Asset-based welfare policies such as the child trust fund will provide powerful counter-measures to the current trends. The child trust fund will ensure that all young adults accumulate a pot of money to invest in their future. It will give all people the opportunity to accumulate some wealth and significantly reduce the current levels of wealth exclusion.
The child trust fund must be implemented in full and then built on. We live in a wealthy society. Policymakers must find ways of allowing all to benefit from this.
The IPPR will be publishing a paper, Coherent and Progressive Asset-based Welfare, later this year.
Will Paxton is a researcher at the Institute for Public Policy Research