Getting wealth entirely wrong
So a report to come from the Resolution Foundation and, given the source, one that’s going to entirely miss the actual point about wealth:
Rachel Reeves could quickly find around £10bn a year to plug half of the fiscal hole left by the Conservatives if she were to raise taxes on soaring levels of unearned wealth, according to leading economists.
Tax as a portion of GDP is already the highest since WWII. The problem is therefore how much and what it is being spent upon, not the collection of revenue. So, there’s one bit of guidance on closing the black hole - spend less.
But the mistake goes further:
The report finds that levels of wealth have risen from four times the national income when Labour was last in power to six times the national income today, despite the recent rise in interest rates.
Even a brief familiarity with the numbers will show us what’s wrong with this insistence. For of course the implication is that there’s some group of Moneybags out there sitting on all that wealth a la Scrooge McDuck. Which isn’t, at all, a useful picture of wealth in Britain.
“Financial assets” is that portion of the population’s wealth which is - potentially at least - owned and sat upon by pince nezed waterfowl. This hasn’t changed much in even nominal terms, let alone real or as a portion of the economy. The two - by far - largest portions of wealth are house prices and pensions funds.
House prices we want to reduce anyway and we’ll do so soon enough once we blow up - kablooie - the planning system. Pensions, well, has anyone noted that we’re an ageing population? That we all now live 15 and 20 years into retirement rather than 3? Therefore we all save more into our pensions as we’ve a couple of decades to finance with them. We even have long and agonising conversations about how to encourage more of this desirable behaviour.
Overall, the Resolution Foundation study finds that wealth inequality is nearly twice as high as income inequality. It notes that on the eve of the pandemic, three in 10 families had less than £1,000 in savings – meaning they lacked any real safety net.
Wealth inequality always is higher than income, that’s just the way things work. And it’s wildly wrong to say that people lack a safety net in a country with a welfare system. What does anyone think we have the welfare state for if it’s not to provide a safety net? Meaning that folk don’t have to have direct savings because the welfare state already does that.
Finally, if pensions are a vast portion of wealth - they are - and we’ve an ageing population - we have - then we’ve got to take lifecycle effects into account when surveying that wealth. For, clearly and obviously, household wealth will peak just before, at and just after retirement date. Which no one does bother to do. That “top 10%” has a very definite age profile to it that is.
The reality here is that the establishment has managed to spend all and more of what can be squeezed out of the population’s incomes and consumption. Therefore there’s a desperate casting around for a - any - other form of taxation that can be imposed and damn logic or even analysis while doing so. The correct answer of spending less of everyone elses’ money isn’t discussed. For who does go into politics other than to spend everyone elses’ money?
Tim Worstall