Wealth check: what the new Government needs to know about household wealth as it navigates the challenges ahead

Publication type

Report

Author

Publication date

July 28, 2024

Summary:

British household wealth has been on a rollercoaster ride in recent years. In Q1 2024, it was estimated to be worth more than six times GDP (630 per cent), more than 50 per cent higher than the last time Labour came into power (410 per cent in 1997). The key driver of this huge rise in wealth is unearned passive gains. These gains have stretched the gap between the wealthy ‘haves’ and the less fortunate ‘have nots’: today, families in the top tenth of the wealth distribution have £1.3 million more in wealth per adult on average than those around the middle (fifth decile). Yet, despite huge increases in wealth, revenues raised from wealth-related taxes have barely moved, at around 3 per cent of GDP. Tapping unearned gains on wealth could be an appealing option for the Government, if it wants to avoid sharp cuts to some public services and maintain commitments not to raise the headline rates of taxes on income. To that end, reforms to Capital Gains Tax and Inheritance Tax could collectively raise almost £10 billion.
But not everyone has been able to join in on Britain’s wealth boom. Historically low levels of active saving have left many families with small financial buffers. In June, three-in-ten Britons (27 per cent) said their household would be unable to cope with an unexpected bill of £850. Many workers are also failing to save enough in their pensions, despite the success of auto-enrolment during the 2010s. These two problems – of low precautionary savings today and insufficient pensions for the future – require a joined-up solution. For example, a higher default rate for auto-enrolled pension contributions could be coupled with contributions to a liquid ‘sidecar’ savings account, which have been shown to boost precautionary savings for employees. The Government could complement this by expanding Help to Save, an existing scheme that incentivises saving for those on low incomes.

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Link

https://www.resolutionfoundation.org/publications/wealth-check/

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