What are the Drivers of Wealth Inequality in the UK and how can they be Addressed?

The UK is a place of significant inequality - 1 in 4 households in the South East are millionaires, compared with just 1 in 50 in the North East, and the average woman owns £101,000 less wealth than the average man.

One driver of wealth inequality in Britain is the soaring value of wealth. Whilst wealth inequality has changed little since 1980, growth in the value of wealth has far outstripped UK economic growth from about 3 times GNI in the 1980s to around 8 times today. Despite this, the amount of tax collected from wealth has remained about 4% of GDP, betraying significant problems with how this inequality is addressed.

Surging house prices have meant that first time buyers increasingly rely on the ‘Bank of Mum and Dad’ to buy a home, deepening the inequalities between those who can afford to help their children and those who cannot. Around £17 billion is thought to be gifted or loaned informally every year, almost all from parents to their adult children. Whilst this family support doesn’t really change the timeframe, first time buyers with family assistance tend to buy pricier properties, thanks to larger deposits. This divide is most pronounced in London, where in 2024 the average assisted buyer put down a deposit of £224,000 - dwarfing the £145,0000 put down by their unassisted counterparts.

This has greatly widened the disparity between rich, poor, young and old. Younger generations are much less likely to own a home than their predecessors, with half of working age adults now renting. This is especially true in London, where the total value of the housing stock is worth more than all of the homes in Wales, Scotland, Northern Ireland and the North combined.

Additionally an ‘inequality trap’ has emerged, whereby wealth generates political power, which is in turn used to protect wealth from redistribution. This can be seen in the vast donations that wealthy people give to political parties that aim to protect the wealth, such as Reform UK. Reform has received £17 million since 2019, of which more than 80% came from just five people.

What can we do about this? Recent estimates suggest that 40% of household wealth in Britain is held in property. This property is very unequally distributed, with the Gini coefficient of UK property wealth being 0.66, almost double that of income at 0.35. One way we can tackle this is by building more houses and creating disincentives for people to demand second homes, increasing the supply of housing and helping more people get onto the housing ladder.

Affordable housing was built en masse in Britain by local authorities in the 1960s and 1970s, however Right to Buy has led to over 2 million social homes being sold into private ownership between April 1980 and March 2023. An obvious fix is to reform Right to Buy, so that affordable housing remains an asset of the local community, rather than an easy opportunity to cash in and make a profit. One alternative being trialled in Worcestershire is a scheme that uses a perpetual restrictive covenant to keep homes affordable forever, enabling poorer families to once again live where they work.

Inequalities do not only exist in property. Stagnant wage growth in Britain means that real earnings have eroded back to 2008 levels. This only makes it harder for working families to save their way up the wealth distribution. According to a 2018 study, they would need to save 'every single penny for 43 years' to reach the wealthiest 10%.

A way of addressing this could be to help the poorest build up their ownership of assets, perhaps by bringing back the principle of asset-based welfare. New Labour introduced several such policies, like the Child Trust Fund and the Savings Gateway, which encouraged lower-income people who had no habit of saving to save for the first time.

The growing void between the richest and the poorest in the UK means that parental wealth today matters more than ever when explaining wealth inequalities - ‘Wealth is increasingly inherited, not earned. At 60% of all private wealth in the UK, inheritance has become the principal route to prosperity over hard work. Moreover, ultra-high net worth invidivuals can save and take more work, accessing higher returns as their money works for them. This buildup of wealth in older generations means that inherited wealth will only reinforce inequality as the 'Great Wealth Transfer' takes place.

This makes inheritances crucial. Reforming the way in which wealth is taxed is a key step towards promoting fairness and social mobility. However taxation alone is not enough - the UK must also renew its commitment to asset-building for all. This will help those from poorer backgrounds accumulate wealth of their own and contribute to a fairer Britain.

Nathan d'Almeida is a student at Stafford Grammar School and one of the five 2025 Young Economist of the Year competition finalists.

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