The rich get richer and the poor get poorer
We’re all in the soup together? Not according to this small nugget of information I’ve unearthed from the Bank of England’s latest Quarterly Bulletin.
The following chart, compiled from a survey conducted for the Bank by NMG Consulting, shows the net worth of people with mortgages, sorted by household income.
While median households are marginally worse off this year than they were in 2005, the top 55 per cent top 45 per cent* are still worth more than they were six years ago. And the top 10 per cent are quite significantly better off, enjoying a net worth almost £100,000 higher than in 2005. By contrast the bottom half of the income distribution have all seen their net worth slide, often by tens of thousands of pounds.
So what lies behind this? The answer is: our dysfunctional housing market. House prices in London and the South East, where the richest tend to live, have held up, while they have fallen in the rest of the country. So if you’ve got a modest house someone outside the capital, you’ll have seen its price slide and your net worth fall in recent years. But if you’ve got a Kensington mansion, you’ll have seen local house prices rise still further and your net worth thus increase.
A mansion tax would, of course, reduce this inequality, but, as we know, Conservatives aren’t keen on that.
Of course, the above chart only shows the net worth of people with mortgages. The Bank also produced a chart showing the same for renters:
The story here is more nuanced. The top 5 per cent of earners have seen their net worth rise since 2005. Those in the middle to high income range, the 30th to 90th percentiles , have seen no change or a slight negative impact on their net worth. But those in the bottom 20 per cent of renters have seen their negative net worth decrease, which means that they are now slightly better off.
For the reasons behind this I turned to Andrew Goodwin, senior adviser to the Ernst and Young ITEM club, for guidance:
“I would have thought that the high end has probably held up because they will hold bonds, equities and other assets which, with a bit of clever investment, would have outperformed returns on cash. The bottom 5 per cent has probably done better because they’ve deleveraged – either by choice or because the tightening of credit conditions has meant that banks aren’t willing to let them spend on their credit cards or take out personal loans to the same degree as prior to the financial crisis.”
*Thanks to Fivepastmidnight for spotting that I’d misread the graph and accidentally diminished the strength of my argument
Tagged in: bank of england, mansion tax, net worth
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