As much of the nation focused with growing concern on ‘freedom day’ last week, a revelation report on Covid’s uneven economy has gone slightly under the radar. Looking at a range of indicators, researchers at the Resolution Foundation think tank did the math on how 16 months of foreclosure affected household wealth. The blunt conclusion was that the pandemic had “turbo-charged” the already gaping gap between rich and poor.
Unlike the aftermath of the 2008 crash, when asset prices joined a general economic fall, the pandemic produced the strangeness of a boom in the midst of a recession. Real estate values, in part driven by government measures to stimulate demand, are now significantly above pre-pandemic levels. Stock prices were also strong, although fears about the continued spread of the Delta variant caused a slowdown this week. Savings accrued from working from home have contributed to a £ 900 billion increase in total household wealth. At the high end of the scale, the gap between the richest 10% of families and the median family has grown to 55 times typical household income. In contrast, at the bottom of the scale, families lost income while on leave or worked fewer hours, ending up with more debt than at the start of the pandemic.
In a way, this should come as no surprise. For decades the unspoken rule of British politics has been that the wealthy in assets will get richer. Adjusted for inflation, the value of household wealth has doubled since 1980, but wealth tax revenues have remained more or less stagnant. The most prosperous have received timid and childish treatment from successive governments. Capital gains tax reforms have been contemplated in the spring by the Chancellor, Rishi Sunak, then quickly fell back into the background. Tax breaks on savings and investments have not been affected. Housing tax rates have become an unfair and regressive nonsense. Anachronistically determined by reference to 1991 land values, current bands only persist because no government dares to do anything about them.
Exacerbated by the Covid, this inequitable state of affairs has surely become unsustainable. By publishing its report on the State of the Nation 2021 this week, the Committee on Social Mobility Noted that after two years in power, the government of Boris Johnson was “far from achieving” its stated goals of “leveling up”. Yet when it comes to dealing with the real decline in nurses’ pay, dealing with the huge education crisis or tackling growing child poverty, the government regularly emphasizes budgetary constraints. Now abandoned proposals to fund a social care and health tax by increasing national insurance would have made matters worse. It is a shame that the welfare funding crisis has still not been resolved, but the answer is not a regressive roundup on the incomes of the less well off.
The polls have suggested strong public support for an increase in wealth taxes. This is based on a valid feeling that the gap between the rich and the poor has grown too large and that the rich have gotten richer in recent years. There is also a broad consensus that the times demand a higher level of government spending for the common good. After 40 years of summit gains, the case for reform of UK wealth taxes was strong before the pandemic. Given the enormous challenges that an even more unequal post-pandemic Britain will face, this is now certainly indisputable.