Working for a living is becoming a more difficult way to get rich in modern Britain amid rising wealth inequality over the past decade, according to research published today that warns of a collapse in social mobility as the importance of inheritance grows.
The Institute for Fiscal Studies said wealth has grown rapidly relative to business earnings since the 2008 financial crisis, driven by rising prices for housing and financial assets — such as stocks and shares — at a time of steady progress relative to average wages.
Robert Joyce, IFS Deputy Director, said: “A generation of Britons has suffered a wave of rising asset prices, driving up the value of their homes and investments. At the same time, a decade-long stagnation of earnings has crippled younger generations whose economic success it has become imperative to earn their own economic success. increasingly difficult.
“The fact that we can no longer ensure that young people will grow up with identical living standards [those of] Their ancestors is a remarkable social change.”
In a major study as part of the IFS Deaton Review of Inequality, led by Nobel Prize-winning economist Sir Angus Deaton, IFS found that wealth levels are growing at much faster rates than income means it is now more difficult for working families to enter the ranks. Of the rich in Britain by hard work alone.
She said the amount of time it takes to earn enough to move from the middle wealth category to the top has increased by about six years compared to the past decade.
In 2008, it took 10 years of typical full-time gross earnings to go from the middle class to the highest wealth. By 2018, that had risen to nearly 16.
“While income remains important, wealth is increasingly at the heart of today’s most pressing economic inequalities,” the report said.
The findings come as Chancellor Jeremy Hunt comes under pressure to raise taxes on wealth in his fall statement released next week, as he tries to find billions of pounds in savings after Liz Truss’ failed budget.
Activists and economists have argued a focus on taxing the wealthiest in society rather than renewing cuts to public services after a decade of austerity, and as the succession of economic shocks in the Covid pandemic and cost-of-living crisis disproportionately hurt Britain’s poorest families. .
Research by Tax Justice UK, a campaign group, suggests the Rishi Sunak government could raise up to £37 billion to help pay for public services and support energy bills this winter through a series of wealth taxes.
The International Finance Corporation said the pandemic and its consequences may have increased wealth and wealth inequality even further. Increases in saving during lockdowns — when consumers set aside money while parts of the economy shut down — have been largest for the wealthiest, while they have benefited the most from rising home and financial asset prices.
The country’s leading economic think tank said rapid increases for those who already own wealth have coincided with a long-term stagnation in earnings. This means that younger adults in particular “can no longer expect to see a significant improvement in living standards as they age” compared to the faster increases in wages and access to cheaper housing enjoyed by their parents’ generation.
Highlighting the collapse in home ownership among younger adults, the IFS said that only 36% of those born in the 80s owned their own homes by age 30, compared to 55% of those born in the 70s and more than 60% of those born in the 50s and 60s.
House prices have risen steadily in recent decades and have boomed since the 2008 financial crisis, buoyed by very low interest rates from the Bank of England since the banking crash, before another sharp increase during the Covid pandemic.
The International Financial Services Federation said that these trends have increased the proportion of the country’s wealth that is held by the older generations. By contrast, average wage growth has stalled over the past decade, with typical wages today less than they were in 2007 after accounting for inflation.
This combination means inherited wealth has become more important to the lifelong economic resources of younger generations, as earnings from work become less influential, the Institute for Financial Services said.
A government spokesperson said: “The average hourly wage of full-time employees has risen across the board this year – most notably for those on low incomes – while the proportion of low-paying jobs is at its lowest since records began.
Meanwhile, the government is helping hard-working young people and families up the housing ladder, expanding exemption for first-time buyers from stamp duty and offering flexible and innovative home ownership schemes such as help with first home purchases.
“We are on track to meet our target of opening 1 million new homes, with an investment of £10 billion announced since the start of this Parliament.”