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

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• Guest

  Net worth? Supposed inflated value of house without even being sold less liabilities times IQ/100 x BS factor.
  BS factor is running at a very high level at the moment. Looks to me that 75% of the population are well shackled by the testiculars, although I am not an economist and therefore not in a position to interpret the data; that needs to be done by informed people like Gorgon Brown, Melvyn King, Georgia Osborne, Mystic Meg et al.

• hazwold_darkbolt

  How does the fact that my house has risen in value make me better off?

  It only makes me richer if I liquidate it and given that i need a roof and 4 walls at the moment this wont be happening until my box arrives at the door.

• hazwold_darkbolt

  Second question

  Why should I pay a tax on an assett that has risen in value simply because someone wealthier than me wants it.

• Joree

  It doesn’t matter if mortgages are paid off more quickly or more slowly. The point is, he isn’t comparing like with like. He’s comparing apples and pears. The only really interesting thing is a comparison of pay in the whole nation over those years, not just of renters and mortgage owners. Renters today may be quite a different group in 2011 from what they were in 2005. Same for mortgage holders. The richest don’t even have a mortgage. Starters today may find it more difficult or easier to get a mortgage. More repossessions or less repossessions means a different group are renting today from 2005. Either way the comparison gets skewed. Only by comparing net worth of the whole nation do you get figures worth looking at to draw conclusions such as ‘the rich are getting richer’.

• hippobreath

  actually ben, if you have debts and are paying high interest on them you will of course be getting poorer than someone who is solvent. i believe this is a ‘no brainer’ as our american cousins are wont to say.

• mattby

  Is this not always the case -re headline?

• http://youtu.be/T_6365-AvJI John

  Nothing will ever changed until we the people start doing our part give hell to your Local MP’s & Councilors. 
  They don’t like people protesting on the Towns or Cities start making them work contact them tell them your not happy.  
  I use a site called they work for you  

• Peer of the Realm

  No… The real reason is, poor people tend to be not as intelligent as rich people. Not BECAUSE they are poor/rich, but because those who are naturally endowed with higher intelligence apply that intelligence towards increasing their wealth, whereas the less intellectually gifted can’t, since they’re more focused on survival, or fail to recognise and/or squander what opportunities for advancement do come their way. Quite aside from their own innate endowments, of course, the rich also have the ability to hire others to help them manage and grow their wealth. It’s only a natural course of events that the rich will tend to become richer, relative to the poor, over the decades. Of course, if the rich were also mostly altruistic, this situation of increasing wealth disparity wouldn’t exist, since the rich would give away the majority of their wealth to the poor. The fact that this has not happened and that the gap continues to widen is simply proof that the human animal is just as selfish as ‘animal’ animals, and while I’m not saying that altruistic acts are absent from the animal kingdom, animals for the most part behave selfishly, and it is astonishingly naive to believe that humans are fundamentally different. Depressing, perhaps, yet undeniably true. What we’re going to see happening in the very near future is that Homo sapiens will actually be speciated (very rapidly) into several new species, or at least subspecies, the ’superman’ rich becoming vastly superior to the (then subhuman) ‘normal’ Homo sapiens who won’t have access to the same extremely potent but extremely expensive life-extending (or even immortalising) and disease-preventing drugs and ability to create manipulated ‘designer humans’ that the rich will have access to. In the next 20-30 years, we will actually witness the end of Homo sapiens as a single species.

• http://www.facebook.com/profile.php?id=100002366976184 Ratz Shaikh

  Inequality