• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Go to Positive Money Europe
  • Go to Positive Money US

Positive Money

Making money and banking work for society

  • About us
    • Our vision
    • Who we are
    • History & highlights
    • Contact us
    • Current vacancies
    • In the media
    • Funding & Annual Reports
  • What we do
    • Educate & empower
    • Research and Policy
    • Campaign & local groups
    • Influence decision makers
    • In the media
    • International Movement
    • Events
  • Resources
    • Videos
    • Publications
    • Local group resources
    • Lobby your MP
    • Organise an Event
    • Policy resources
    • Shop
  • Press
  • Blog
  • Donate
  • Positive Money Europe
  • Positive Money US

What’s the difference between wealth inequality and income inequality, and why does it matter?

by Rob Macquarie

Wealth inequality is in the news, with our friends at IPPR pointing to just how ‘unevenly divided’ wealth is in the UK. The problem is huge: the top 10% of households are 875 times wealthier than those at the bottom.

But why is there so much focus on wealth inequality – and what’s the difference between that and income inequality?

Personal wealth means a stock of valuable possessions: anything from cash under your mattress, through shares and bonds, to the value of your house or your car. Income, on the other hand, is a flow of money you receive, such as wages for employment.

Here in the UK, we’ve heard talk that inequality hasn’t increased since before the financial crisis. Claims like that refer to income inequality. In July 2017, the Institute for Fiscal Studies (IFS) caused a stir with a report showing that the gap between the highest wages and the lowest has not changed much since 2008.

Statistics on income inequality risk misinterpretation. Although it has fallen by some measures, that doesn’t mean that those at the bottom are doing any better. In fact, as the Resolution Foundation revealed in a report for the Social Mobility Commission today, people on low pay are increasingly finding themselves stuck there, unable to ‘escape’ to better employment. The results in the IFS report are due mostly to salaries in the financial and insurance services sector, which are among the highest, falling dramatically after the crash; it also showed that those same salaries have been climbing faster over the past couple of years.

Wealth inequality is much more severe than income inequality. A tiny fraction of the population owns most of the UK’s pile of riches. In our recent work, we found that, between 2006-8 and 2012-14, the richest fifth of households gained almost 200 times as much in absolute wealth terms compared to the poorest fifth.

So, irrespective of the story on incomes, Britain is becoming much more unequal. Once we consider the consequences of wealth inequality, there’s much more cause for concern.

In the first place, wealth is itself a source of income. Holding stocks and shares on financial markets guarantees a source of income in the forms of dividends and capital gains; holding bonds or savings generates interest. The effect goes further: wealth allows people to purchase better healthcare and education, and assets like a house or a car themselves enable people to save time and take on better jobs (this article over at Quartz has a great summary of this point). Income can be stored as wealth, but wealth begets income.

This means that wealth is stockpiled by the rich and inequality gets worse over time, as Thomas Piketty’s groundbreaking book Capital in the 21st Century outlined with painstaking historical clarity. Since the return on capital (wealth) is higher than the rate of economic growth in general, wealth comes to dominate wages as the determinant of how prosperity is shared.

As the authors at IPPR point out, these facts have a necessary intergenerational bite to them. ‘Every generation since the ‘baby boomers’ now has less wealth than the generation before them had at the same age.’ With policies like exemptions for inheritance tax and the crushing weight of the housing market bearing down on young people, wealth inequality doesn’t only reinforce itself within the same cohort – it can multiply to appalling levels from one generation to the next.

Conservative politicians tearing their hair out over attracting younger voters would do well to take a long, hard look at wealth inequality statistics. Income inequality threatens to deteriorate. But the real news is in wealth and the patent unfairness associated with it.

Economic Analysis, Theory, In the News

Rob Macquarie

Economist, Positive Money

Rob leads Positive Money’s research on the monetary system, democracy and the climate.

Primary Sidebar

Get our latest campaign updates

Recent Posts

  • HeadSpin! Rewrite the rules of the money game
  • Campaigners trick or treat the banks
  • HSBC Q3 profits: Positive Money response
  • Natwest Q3 profits: Positive Money response
  • Lloyds Bank Q3 2023 profits: Positive Money response

Footer

Follow us on social media

  • Facebook
  • Instagram
  • Twitter
  • YouTube

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.


Privacy Policy, Terms & Conditions


Positive Money is a company limited by guarantee registered in England and Wales. Registered number 07253015.
Registered office: 104 Davina House, 137-149 Goswell Road, London EC1V 7ET.


Positive Money Europe