Historically, the expectation of improving living standards over generations has been a common belief. However, contemporary circumstances indicate a contrasting reality, particularly concerning wealth accumulation. A notable discrepancy between income and wealth evolution in the UK, propelled by surging house prices, has led to a scenario where millennials and younger cohorts are less likely to attain homeownership by their thirties compared to their parents. This imbalance significantly hampers the prospects of social mobility for the younger population.
While the UK has witnessed significant increases in income inequality over the past 60 years, the pivotal shift occurred in the 1980s. Although income inequality has exhibited relative stability over the last three decades, the soaring value of assets, primarily housing, has played a defining role in reshaping economic inequalities. Recent insights from economic studies emphasize the rising significance of wealth relative to income, altering the economic power dynamic between generations.
The substantial growth in average house prices, escalating from £56,000 to over £290,000 by August 2022 since 1995, has outpaced general inflation. This boom in wealth accumulation, extended to other assets like equities, has primarily benefited property owners, constituting around 65% of UK households. On the contrary, a substantial segment of the population, devoid of property or other assets, has seen negligible gains during this period of wealth expansion. Consequently, while the proportion of wealth owned by affluent individuals may not have drastically changed, the wealth gap between different socioeconomic groups has expanded.
Despite the surge in wealth, earnings from work have experienced stagnation since the 2008 financial crisis. Real earnings for the average worker have not increased, making it challenging to accumulate wealth through earning and saving. The wealth gap between the middle and top of the distribution has grown, making it more arduous for individuals to ascend the wealth ladder. Earnings, growing slower than house prices since the mid-1990s, further exacerbate the challenge for recent generations to save for a deposit and qualify for a mortgage.
In essence, the combination of escalating wealth and sluggish, unequal income growth means older generations possess increasingly substantial shares of wealth. This poses a threat to the historical trend of each generation achieving improved financial standing compared to the preceding one. The younger population is compelled to rely more on inherited wealth, potentially fueling a crisis of declining social mobility.
The issue of addressing income and wealth inequalities has become a prominent topic in British politics. The persistence and deepening of these disparities could heighten concerns, emphasizing the urgency of effective measures to preserve social mobility. The economic outlook remains uncertain, and without substantial improvements in productivity and housing supply, the trends of a widening wealth gap and stagnant incomes are likely to persist.