Monday, October 11, 2010

Thoughts on "How Fair is Britain?"

This report was written by the Equality and Human Rights Commission, under the chairmanship of Trevor Phillips. It uncovered some interesting facts (at least, as they were reported by the Telegraph).

One of the things that struck me, following some discussion about what constitutes "extreme" wealth, was how this group analysed wealth. The Telegraph report said:
The total net household wealth of the top 10 per cent of the population is £853,000, almost 100 times more than the net wealth of the poorest 10 per cent, which is at most £8,800.
No reference to income is made at all in the context of what constitutes a wealthy family here, and a little analysis of this shows why. If I had a mortgage for £850,000 (supposing such a thing were possible), the interest alone (at around 5%) would cost me in excess of £40,000 per year. To pay £40,000 per year, I'd need additional gross income of £67,000 per year.

Or put it another way. A house worth £850,000 per year would probably be let out for £2500 or more per month. That's an annual income of £30,000.

To live in a house worth that amount not paying rent or mortgage is equivalent to an annual income of somewhere between £30,000 and £70,000. A person may technically have no income at all, and yet the benefit of their capital would mean that they were still better off than somebody earning close to the higher tax threshold.

This is consonant with my intuitive feeling that wealth has a lot more to do with ownership of capital, rather than income. It also helps to explain why even though I am comfortably inside the 10% of top earners, I have never felt as though we were well off, compared to the sort of people at whom newspaper supplements are pitched - if we owned our house, rather than having a large mortgage, we would still not be close to being amongst the 10% most wealthy, according to this measure. And yet the removal of child benefit, the suggested increases in university fees, and tax rises are all based on income, not ownership of capital - they are not targeted at the most wealthy at all.

The headline in the Telegraph talked about how the "coping" classes were struggling - "coping" in the sense of coping with an aging generation of parents and an increasingly expensive generation of children - and suggested that one of the emphases of the EHRC was that continuing to place increasing burdens on this group of people would lead to a backlash or breakdown.

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