The Office for National Statistics (ONS) reports that the total net wealth of private households in Britain rose by 13% to £14.6 trillion between 2014-2016 and 2016-18. Ten years on from the worst economic crisis since the Great Depression, everybody, it seems, is getting richer. A closer look, however, paints a very different picture – of ever-growing inequality and runaway debt into which millions are falling in order to afford to live.
Income inequality has continued to steadily rise. Net overall wealth for the richest tenth of households increased in this period by 11% while for the poorest tenth it increased by just 3%. As a result, today the top 30% of households hold 76% of all wealth in Britain, and half of all wealth belongs to just 12% of the population, while the poorest 30% of households own just 2%. Meanwhile, between 2014-2016 and 2016-2018, total household debt in Britain rose by £57bn to £1.28 trillion (91% of which was property debt) – to nearly 60% of the value of Britain’s 2018 GDP of £2.144 trillion.
Poverty and usury
As a proportion of their total wealth, the richest tenth of households (household average total, £2.5m) own by far the most financial wealth – over a fifth of their wealth is in the form of investments (household average £541,000). Many of these will yield income returns, as will their extensive property wealth if it is rented out – a reward for the hard work of doing nothing. As a proportion of wealth they own the least physical wealth (personal property – household average £117,500) – there are limits after all, to luxury.
The poorest tenth by contrast hold the most household debt as a proportion of their wealth, and their total debts are on average three times as large as total wealth. Thus, their net financial wealth was negative £4,900 in 2016-2018 – down £1,000 from negative £3,900 since 2012-2014. This negative financial wealth was only offset for total wealth figures by some physical wealth, and increases in private pension entitlements (due to auto-enrolment). This itself, however, is a statistical mirage: while auto-enrolment has driven a major increase in the total amount of pension wealth held in funds – which expose the money to the vicissitudes of the market – historically low interest rates have driven annuity rates, which determine the amounts actually paid out to pensioners, to a 25-year-low.
Just 2% of the poorest tenth hold property debt – mostly mortgages, but also equity release and borrowing secured against property. Their debt is primarily financial, including credit card debt, overdrafts, loans, and arrears on rent and household bills. It is used to attempt to meet basic needs, such as for those who have turned to credit cards for food shopping and bills, or to payday loans to ride out delays in receiving Universal Credit (UC) payments. Where the average rate for mortgage repayments currently sits around 4% annually, for payday loans this can be 400%. If the borrower manages to repay within one year he or she would pay the money borrowed back five times over. If it takes longer to pay back, then the repayments mount. They are a sign of desperation, and of its predatory exploitation by shameless usurers.
In 2016-2018, of the poorest tenth of households, 15% were in what the ONS calls ‘problem debt’. Debt charity StepChange estimates the total numbers in problem debt – unable to afford essential household bills and with growing interest payments – at three million, with a further ten million ‘on the edge’. StepChange reports that a quarter of its clients in receipt of UC were in ‘problem debt’ – three times the rate among the general population, and twice the rate of claimants on the older ‘legacy benefits’ which UC is replacing. The Department for Work and Pensions offers advance loans to UC claimants to make it through the five-week waiting period. The repayments, however, are made through deductions in the future UC received. StepChange found that half of UC recipients fell behind on non-UC debt repayments because of these deductions, and one in ten told the charity that they had turned to loan sharks in desperation.
Property
The forms of wealth in people’s hands also change across the wealth distribution. The second poorest tenth only pass into the realm of positive net wealth through physical wealth, which constitute 75% of their wealth, and through pension wealth, 21%. They own little or no property or financial assets, but might own a car.
It is the middle 40% in the wealth distribution who hold the most property wealth in proportion to total wealth – they are homeowners. The ONS analysis suggests that this increasing net property wealth has been the main driver, alongside pension wealth growth, of overall wealth increases in the last several years. Rising property wealth has been driven by rising house prices, and by the increase in the number of ageing homeowners who have paid off their mortgages.
However, within this middle layer, the amount of property debt also increased by £30bn between 2014-2016 and 2016-2018. Around half of this middle layer held property debt in 2016-2018. Some of this exists in the form of mortgages held by older people yet to be paid off; some is in the form of non-mortgage property debts; and some is the result of new, younger people taking out mortgages primarily outside London. Thanks to record-low interest rates, January saw the highest rate of approval for new mortgages in four years (Financial Times, 27 January). Flush with cash, the banks are desperate to lend. They are finding people desperate to borrow.
As inequality rises and millions are driven further into poverty, they are increasingly turning to debt in a desperate attempt to keep afloat. Millions more are turning to debt as the only way to gain access to a propertied middle class life. But debt will not allow them to escape the growing crisis forever.
Séamus Padraic
Fight Racism! Fight Imperialism! No 274, February/March 2020
