We don't believe a word of the ONS wealth statistics

Or rather, we’re entirely willing to believe the numbers presented, we just insist they’re not the relevant ones for decision making.

The richest 1% of households in the UK each have fortunes of at least £3.6m, according to new official figures that show the inequality gap was yawning even before the pandemic struck.

At the other end of the scale, the poorest 10% of households have just £15,400 or less, with almost half burdened with more debts than they had in assets, according to figures released on Friday by the Office for National Statistics (ONS).

It means the gap between rich and poor has widened to the largest in more than a decade. The ONS said the income inequality gap as measured by the Gini coefficient had “steadily increased to 36.3%”, which was “the highest level of income inequality since 2010”.

The full figures are here.

The wealth and income figures are being presented on entirely different bases. The income inequality figures are after the influence of tax and benefits and before those of government spending upon services - the NHS, education and so on. The wealth figures are the pure market distribution, before the effects of tax and benefits let alone state spending.

ONS is running with the mainstream in doing it this way, chapter two of this Saez and Zucman paper outlines the standard approach. We insist though that this standard approach is wrong.

Wrong in the sense that it does not provide useful information for decision making. The income inequality figures tell us what inequality remains after the things we do to reduce income inequality. It might be that we should do more - we think probably less but that’s an opinion not a fact - or that we’re doing about the right amount. But the data needed for decision making is what is the effect of what is already done and so what more, or less, needs to be?

The wealth figures are before all of that entire influence of government and the welfare state. Which means we have no data at all about the effectiveness of what is already done. Nor, of course, any useful information about whether more should be done or not.

A lifetime tenancy at below market rent is wealth. Education free at the point of use - or the health care from the NHS - might not be worth what’s spent upon it but it’s certainly wealth to the recipient. The wealth figures are so useless that private pensions are wealth while the state old age pension isn’t.

We do know how to calculate the wealth effect of those things. Just use the same technique as the Saez and Zucman paper, capitalise the income stream from them. But none of the wealth inequality measurements used do this. Therefore, as we really do insist, none of the wealth inequality measures are useful in a policy sense.

We don’t know the effects of what we’re already doing therefore we cannot, possibly, decide whether we should be doing more or not.

Think on it. If we don’t measure the effects of what we do then if we do more then we’ve not changed what we measure in the slightest, have we? So how can we use this as a measure of policy if the measure doesn’t measure the effects of policy?

We insist that all of the wealth inequality measures currently in use are wrong as sources of information for policy decision making purposes. The solution is to start measuring the real world properly - after the effects of what is already done - and until that is done we’re just going to keep shouting that all of these numbers being used are rubbish, rubbish, rubbish. We don’t believe a word nor digit of them.