Sunday, 6 November 2011

Are the Occupiers and Robin Hooders just unwilling to work their way up like their parents?

The nature of wealth in our country is very poorly understood by most people. The Office for National Statistics has been doing some work to try to understand wealth. They did a survey called “Wealth in Great Britain, 2006/8”.

If you look at wealth distribution it looks like those at the bottom have pretty much nothing and those at the top have a disproportionate share, hence the “We are the 99%” rhetoric of the Occupy protestors. See this chart of wealth distribution below:

On the face of it the bottom decile in the UK have pretty much nothing and the top decile are worth around £4 million per household. This looks like a massive disparity. Is it? Probably not.

First off this analysis ignores the fact that most of us start off poor, with nothing even, and get relatively wealthy over the course of our lives. When I graduated in 1984 I had an overdraft, even then, of £800 and my only tangible asset was my stereo system which I might have been able to flog for £30. Apart from a few records which I might have got a few quid more for I had nothing else I could have sold and no savings. I was very lucky to have a good education and be raised by parents who instilled good values into me. I got myself a good job and today I am on my third property and have largely paid off my mortgage. I have built up some pension assets, like most people not enough. I am now over half way up this graph having started off in the bottom decile. When you start to understand and accept the wealth lifecycle then the Occupy rhetoric starts to look rather shaky. The age distribution graph below shows this effect quite clearly.

Note how the very wealthy have disappeared in this picture. They are hiding in the difference between the median and the mean across the age groups. If age was not a massive factor this graph would be flat and the gap between median and mean larger.

However stark this kind of age distribution is it has nothing whatsoever to do with social injustice. In fact it demonstrates clearly that most of us start with nothing, we work, accumulate assets and then we have something. Finally, we retire and spend our way through our money, leaving some residue to our children if we are lucky.

The ONS work shows that wealth distribution is not as stark as you might imagine in the UK and that a huge driver of wealth inequalities is just age. The picture is even better than even I paint though. There are two major classes of financial asset that are not even recorded in this work.

First off the massive benefit of security of tenure of subsidised social housing is not included. Many millions of poorer households in our country enjoy this benefit, which significantly compensates for wealth inequalities yet no attempt is made to value this benefit in the work. Lifetime tenancies and the ability to essentially pass on the tenancy to a further generation are huge, unquantified benefits.

Secondly, no attempt is made to capitalise the value of the income stream represented by state sector pensions. State sector final salary pension schemes are not included. If a valuation of the notional pension pot required to service these obligations was included in this analysis wealth inequalities would drop even further.

The 99% line is simply nonsense. If we halved social housing rents and doubled state pensions we would have no impact on this measure of wealth distribution yet we would have made tens of millions wealthier. Equally if we did the opposite they would get no poorer on this analysis!

Obviously there are significant numbers of people who are really poor and have little prospect of getting wealthier. They may have disabilities, chronic illness, a poor education, a history of offending, drug problems or some mixture of these factors. Society needs to help these people but the rest of us need to help ourselves and pay the taxes required to support those that cannot support themselves. But, these are not the 99%. These are the odd few percent.

It is daunting to be young today. I remember though being properly awed, and lonely, when I came to work in London in 1984. The early eighties were a hard time too. It is not easy and the debts associated with student loans and tuition fees add to the burden of today’s young people. But, there is an answer. Get a job. Work hard. Save. Buy a house. You will start poor and end up rich. It looks like a long road to a twentysomething. It feels like only yesterday that they were starting to a pensioner.

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