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

The world’s richest 1% have enjoyed a wealth increase of $33.9 trillion over the last ten years, more than enough to eliminate global poverty for over 22 years (Ables, 2025), whilst 3 billion cannot afford healthy diets. (Herforth, 2020) Wealth inequality has never been worse, and anyone outside that 1% should be worried. 

Figure 1: (Equality Trust, 2025)

To explain how we got here, we must understand the cyclical process that drives such a concentrated accumulation of wealth, and to do so we must first understand wealth. Wealth is very different to income; earned income is typically earned by working and paid via salaries or wages, whereas wealth is defined as the ownership of assets that generate income without working, like property, stocks, or debt. It is the rich who own the majority of this wealth, creating vast amounts of passive income over time. Take Warren Buffet, for example. With a net worth of $150+ billion, a modest assumption is that his assets yield a 2% annual return, earning around $2.4 billion in passive income. Although this is an extreme example, it demonstrates the ease with which owners of wealth are able to generate income in the absence of work.

Because the income generated is so great, the ultra-wealthy couldn’t spend it all, even if they tried. This is why the wealthy have such a low marginal propensity to consume goods and services (MPC) - about 10x less than low-wealth households (Bank, 2019) leaving them almost “no choice” but to use the rest of their income to buy more assets, like stocks or housing. As a result of this, the price of assets like housing are bid up, the middle class are outbid by the wealthy, and it becomes harder to buy a home. This also fuels inequality, with over 2 million first time buyers having been priced out since 2006 (Bsa.org.uk, 2025).

Because of this, the erosion of the middle class begins, along with debt spirals, as everyday people struggle to pay inflated rents and mortgages. As of Q4 2024, the household debt-to-income ratio stands at a staggering 118.1% (Francis-Devine, 2025), with household debt averaging £65k per household (The Money Charity, 2024). In an attempt to recover, debtors who own houses begin selling (Parliament.uk, 2015), and the houses are bought up by the wealthy. This accumulation of debt is devastating for the general population, but a specific group benefits profoundly. The ultra wealthy creditors. They earn ever-more income from interest payments, entirely passively.

The vicious cycle continues, ensuring the exponential increase of wealth hoarding by the rich, and as a part of this cycle, every time you go to the shop, to the pub, to your university - you’re making transfer payments to the wealthy. Because the wealthy own it all. As of 2022, the proportion of UK shares held by UK-resident individuals fell to 10.8%, down by 1.2% from 2020 (Donnarumma, 2023). The truth is not pleasant, but it is simple, in that when the wealth of the rich grows at 9.2% over the past 25 years (Chancel et al., 2022) as the economy grows at just below 2% (World Bank, 2025), the rich outgrow the economy and inevitably squeeze out working people. Because the rich have a low MPC and often live offshore, they contribute very little to our economy’s consumption of goods and services (a major component of aggregate demand), preferring assets. This leaves the economy largely reliant on the middle and lower class to consume these goods and services, which they are rendered unable to afford, leading to a collapse in living standards, (Mason, 2024) stemming from the skyrocketing asset prices and debt spirals. Unfortunately, this is not just a trend, but a structured process that has shown few signs of slowing. Worst of all, most economists fail to realise the severity of the issue due to the aggregated, averaged way we view economic welfare, and even wealth inequality.

While this may sound dismal, there are feasible, effective solutions that can be implemented. An imperative first step involves policy reforms like closing inheritance tax loopholes. Loopholes are a component of the UK’s £46.8 billion tax gap (HMRC, 2024), and closing just five could raise over £7 billion a year (Tax Justice UK, 2023). 

Another important and perhaps obvious measure is to increase tax rates. Many oppose tax rate increases, arguing that increasing rates simply drives wealth and its tax revenue away, out of the UK, leaving our economy in a worse position than before, but this argument has a key weakness. Wealth taxes on unproductive assets like domestic or commercial property, unlike income taxes, are inescapable. The wealthy cannot simply take their assets with them like they would be able to with income, because they are fuelled by the spending of British consumers. While this is true, it is not unrealistic to increase capital gains tax either, since the UK has only the 13^th highest rate in Europe (Tax Foundation, 2025). The increased tax revenue could go on to fund income tax reductions which would stimulate consumer spending by increasing disposable income, and create a positive multiplier effect. Revenue could also fund affordable housing schemes to begin the redistribution of assets, and the buyback and renationalisation of private companies like British Gas, while simultaneously hindering the wealthy’s ability to continue hoarding assets.

Economists must also begin to measure not just income inequality but wealth inequality, not with aggregates and averages like the GDP, which flattens distortions in distribution, but with more specific metrics like the Palma Ratio that measure the income holdings of the top 10% against the bottom 40% (Floyd, 2017).  These are not radical ideas, but rather basic, fundamental steps toward addressing this complex issue.

The UK has the 3^rd highest inequality of disposable income behind the US and Costa Rica (OECD, 2025), and the poorest households in Slovenia and Malta are now better off than the poorest in the UK (Mosley et al., 2025). As a country, we can and must do better. If not, we will see the continued erosion of our middle class, plummeting living standards, and severe economic downturn.

Bibliography

Ables, K. (2025). World’s Richest 1% Increased Wealth by $33.9 Trillion since 2015, Oxfam Says. [online] The Washington Post. Available at: https://www.washingtonpost.com/world/2025/06/26/billionaires-wealth-inequality-trillion-oxfam [Accessed 29 Jun. 2025].

Bank, R. (2019). Federal Reserve Bank of Boston. [online] Federal Reserve Bank of Boston. Available at: https://www.bostonfed.org/publications/research-department-working-paper/2019/estimating-the-marginal-propensity-to-consume-using-the-distributions-income-consumption-wealth.aspx [Accessed 29 Jun. 2025].

Bsa.org.uk. (2025). Building Societies Association Finds That More than Two Million first-time Buyers Are Missing from T. [online] Available at: https://www.bsa.org.uk/media-centre/press-releases/building-societies-association-finds-that-more-than-two-million-first-time-buyers-are-missing-from-t [Accessed 29 Jun. 2025].

Chancel, L., Piketty, T., Saez, E. and Zucman, G. (2022). The World Inequality Report 2022. [online] World Inequality Report 2022. Available at: https://wir2022.wid.world.

Donnarumma, F. (2023). Ownership of UK Quoted Shares. [online] Ons.gov.uk. Available at: https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2022#ownership-of-uk-quoted-shares-data [Accessed 29 Jun. 2025].

Equality Trust. (2025). The Scale of Economic Inequality in the UK - Equality Trust. [online] Available at: https://equalitytrust.org.uk/scale-economic-inequality-uk#wealthinequality [Accessed 29 Jun. 2025].

Floyd, D. (2017). Measuring Inequality: Forget Gini, the Palma Ratio Might Surprise You. [online] Investopedia. Available at: https://www.investopedia.com/news/measuring-inequality-forget-gini-go-palma [Accessed 29 Jun. 2025].

Francis-Devine, B. (2025). Household debt: Economic Indicators. [online] House of Commons Library. Available at: https://commonslibrary.parliament.uk/research-briefings/sn02885 [Accessed 29 Jun. 2025].

Herforth, A. (2020). Three Billion People Cannot Afford Healthy Diets. What Does This Mean for the next Green Revolution? [online] Csis.org. Available at: https://www.csis.org/analysis/three-billion-people-cannot-afford-healthy-diets-what-does-mean-next-green-revolution [Accessed 29 Jun. 2025].

HMRC (2024). 1. Tax gaps: Summary. [online] GOV.UK. Available at: https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary [Accessed 29 Jun. 2025].

Mason, R. (2024). Living standards 2025 outlook ‘hardly cause for celebration’, says UK thinktank. [online] the Guardian. Available at: https://www.theguardian.com/politics/2024/dec/27/living-standards-outlook-2025-uk-resolution-foundation-ifs [Accessed 29 Jun. 2025].

Mosley, M., Wattam, R., Vincent, C. and Pabst, A. (2025). UK Living Standards Review 2025 - NIESR. [online] NIESR. Available at: https://niesr.ac.uk/publications/uk-living-standards-review-2025?type=report [Accessed 29 Jun. 2025].

OECD (2025). Income Inequality. [online] OECD. Available at: https://www.oecd.org/en/data/indicators/income-inequality.html [Accessed 29 Jun. 2025].

Parliament.uk. (2015). Evidence on Effectiveness and Impact of post-2008 UK Monetary Policy. [online] Available at: https://committees.parliament.uk/writtenevidence/78683/html [Accessed 29 Jun. 2025].

Tax Foundation. (2025). Capital Gains Tax Rates in Europe, 2025. [online] Available at: https://taxfoundation.org/data/all/eu/capital-gains-tax-rates-europe/ [Accessed 29 Jun. 2025].

Tax Justice UK. (2023). Close 5 Tax Loopholes to Raise over £7 Billion a Year - Tax Justice UK. [online] Available at: https://taxjustice.uk/blog/close-5-tax-loopholes-to-raise-over-7-billion-a-year [Accessed 29 Jun. 2025].

The Money Charity. (2024). The Money Charity’s Money Statistics Report June 2024. [online] Available at: https://themoneycharity.org.uk/money-statistics/june-2024 [Accessed 29 Jun. 2025].

World Bank (2025). GDP Growth (annual %) - United Kingdom. [online] Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZGend=2021&locations=GB&start=1996& [Accessed 29 Jun. 2025].

Figure 1: (Equality Trust, 2025)

To explain how we got here, we must understand the cyclical process that drives such a concentrated accumulation of wealth, and to do so we must first understand wealth. Wealth is very different to income; earned income is typically earned by working and paid via salaries or wages, whereas wealth is defined as the ownership of assets that generate income without working, like property, stocks, or debt. It is the rich who own the majority of this wealth, creating vast amounts of passive income over time. Take Warren Buffet, for example. With a net worth of $150+ billion, a modest assumption is that his assets yield a 2% annual return, earning around $2.4 billion in passive income. Although this is an extreme example, it demonstrates the ease with which owners of wealth are able to generate income in the absence of work.

Because the income generated is so great, the ultra-wealthy couldn’t spend it all, even if they tried. This is why the wealthy have such a low marginal propensity to consume goods and services (MPC) - about 10x less than low- wealth households (Bank, 2019) leaving them almost “no choice” but to use the rest of their income to buy more assets, like stocks or housing. As a result of this, the price of assets like housing are bid up, the middle class are outbid by the wealthy, and it becomes harder to buy a home. This also fuels inequality, with over 2 million first time buyers having been priced out since 2006 (Bsa.org.uk, 2025)

Because of this, the erosion of the middle class begins, along with debt spirals, as everyday people struggle to pay inflated rents and mortgages. As of Q4 2024, the household debt-to income ratio stands at a staggering 118.1% (Francis-Devine, 2025), with household debt averaging £65k per household (The Money Charity, 2024). In an attempt to recover, debtors who own houses begin selling (Parliament.uk, 2015), and the houses are bought up by the wealthy. This accumulation of debt is devastating for the general population, but a specific group benefits profoundly. The ultra wealthy creditors. They earn ever-more income from interest payments, entirely passively.

The vicious cycle continues, ensuring the exponential increase of wealth hoarding by the rich, and as a part of this cycle, every time you go to the shop, to the pub, to your university - you’re making transfer payments to the wealthy. Because the wealthy own it all. As of 2022 the proportion of UK shares held by UK-resident individuals fell to 10.8%, down by 1.2% from 2020 (Donnarumma, 2023). The truth is not pleasant, but it is simple, in that when

the wealth of the rich grows at 9.2% over the past 25 years (Chancel et al., 2022) as the economy grows at just below 2% (World Bank, 2025), the rich outgrow the economy and inevitably squeeze out working people. Because the rich have a low MPC and often live offshore, they contribute very little to our economy’s consumption of goods and services (a major component of aggregate demand), preferring assets. This leaves the economy largely reliant on the middle and lower class to consume these goods and services, which

they are rendered unable to afford, leading to a collapse in living standards, (Mason, 2024) stemming from the skyrocketing asset prices and debt spirals. Unfortunately, this is not just a trend, but a structured process that has shown few signs of slowing. Worst of all, most economists fail to realise the severity of the issue due to the aggregated, averaged way we view economic welfare, and even wealth inequality.

While this may sound dismal, there are feasible, effective solutions that can be implemented. An imperative first step involves policy reforms like closing inheritance tax loopholes. Loopholes are a component of the UK’s £46.8 billion tax gap (HMRC, 2024), and closing just five could raise over £7 billion a year (Tax Justice UK, 2023).

Another important and perhaps obvious measure is to increase tax rates. Many oppose tax rate increases, arguing that increasing rates simply drives wealth and its tax revenue away out of the UK, leaving our economy in a worse position than before, but this argument has a key weakness. Wealth taxes on unproductive assets like domestic or commercial property, unlike income taxes, are inescapable. The wealthy cannot simply take their assets with them like they would be able to with income, because they are fuelled by the spending of British consumers. While this is true, it is not unrealistic to increase capital gains tax either, since the UK has only the 13th highest rate in Europe (Tax Foundation, 2025). The increased tax revenue could go on to fund income tax reductions which would stimulate consumer spending by increasing disposable income, create a positive multiplier effect. Revenue

could also fund affordable housing schemes to begin the redistribution of assets, and the buyback and renationalisation of private companies like British Gas, while simultaneously hindering the wealthy’s ability to continue hoarding assets.

Economists must also begin to measure not just income inequality but wealth inequality, not with aggregates and averages like the Gini coefficient, which flattens distortions in distribution, but with more specific metrics like the Palma Ratio that measure the income holdings of the top 10% against the bottom 40% (Floyd, 2017). These are not radical ideas, but rather basic, fundamental steps toward addressing this complex issue.

The UK has the 3rd highest inequality of disposable income behind the US and Costa Rica (OECD, 2025), and the poorest households in Slovenia and Malta are now better off than the poorest in the UK (Mosley et al., 2025). As a country, we can and must do better. If not, we will see the continued erosion of our middle class, plummeting living standards, and severe economic downturn.

Cole Brydson is a student at Gower College, Swansea, and the recipient of the 2025 Young Economist of the Year Welsh Award.

Bibliography

Ables, K. (2025). World’s Richest 1% Increased Wealth by $33.9 Trillion since 2015, Oxfam

Says. [online] The Washington Post. Available at:

https://www.washingtonpost.com/world/2025/06/26/billionaires-wealth-inequality-trillion-oxfam [Accessed 29 Jun. 2025].

Bank, R. (2019). Federal Reserve Bank of Boston. [online] Federal Reserve Bank of Boston.

Available at: https://www.bostonfed.org/publications/research-department-working-paper/2019/estimating-the-marginal-propensity-to-consume-using-the-distributions-income-consumption-wealth.aspx [Accessed 29 Jun. 2025].

Bsa.org.uk. (2025). 

Building Societies Association Finds That More than Two Million first-

time Buyers Are Missing from T. [online] Available at: https://www.bsa.org.uk/media-centre/press-releases/building-societies-association-finds-that-more-than-two-million-first-time-buyers-are-missing-from-t [Accessed 29 Jun. 2025].

Chancel, L., Piketty, T., Saez, E. and Zucman, G. (2022). The World Inequality Report 2022.

[online] World Inequality Report 2022. Available at: https://wir2022.wid.world.

Donnarumma, F. (2023). Ownership of UK Quoted Shares. [online] Ons.gov.uk. Available at:

https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2022#ownership-of-uk-quoted-shares-data [Accessed 29 Jun. 2025].

Equality Trust. (2025). The Scale of Economic Inequality in the UK - Equality Trust. [online]

Available at: https://equalitytrust.org.uk/scale-economic-inequality-uk#wealthinequality

[Accessed 29 Jun. 2025].

Floyd, D. (2017). Measuring Inequality: Forget Gini, the Palma Ratio Might Surprise You.

[online] Investopedia. Available at: https://www.investopedia.com/news/measuring-inequality-forget-gini-go-palma [Accessed 29 Jun. 2025].

Francis-Devine, B. (2025). Household debt: Economic Indicators. [online] House of

Commons Library. Available at: https://commonslibrary.parliament.uk/research-briefings/sn02885 [Accessed 29 Jun. 2025].

Herforth, A. (2020). Three Billion People Cannot Afford Healthy Diets. What Does This

Mean for the next Green Revolution? [online] Csis.org. Available at:

https://www.csis.org/analysis/three-billion-people-cannot-afford-healthy-diets-what-does-mean-next-green-revolution [Accessed 29 Jun. 2025].

HMRC (2024). 1. Tax gaps: Summary. [online] GOV.UK. Available at:

https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary

[Accessed 29 Jun. 2025].

Mason, R. (2024). Living standards 2025 outlook ‘hardly cause for celebration’, says UK

thinktank. [online] the Guardian. Available at:

https://www.theguardian.com/politics/2024/dec/27/living-standards-outlook-2025-uk-resolution-foundation-ifs [Accessed 29 Jun. 2025].

Mosley, M., Wattam, R., Vincent, C. and Pabst, A. (2025). UK Living Standards Review 2025

- NIESR. [online] NIESR. Available at: https://niesr.ac.uk/publications/uk-living-standards-review-2025?type=report [Accessed 29 Jun. 2025].

OECD (2025). Income Inequality. [online] OECD. Available at:

https://www.oecd.org/en/data/indicators/income-inequality.html [Accessed 29 Jun. 2025].

Parliament.uk. (2015). 

Evidence on Effectiveness and Impact of post-2008 UK Monetary

Policy. [online] Available at: https://committees.parliament.uk/writtenevidence/78683/html

[Accessed 29 Jun. 2025].

Tax Foundation. (2025). Capital Gains Tax Rates in Europe, 2025. [online] Available at:

https://taxfoundation.org/data/all/eu/capital-gains-tax-rates-europe/ [Accessed 29 Jun. 2025].

Tax Justice UK. (2023). Close 5 Tax Loopholes to Raise over £7 Billion a Year - Tax Justice

UK. [online] Available at: https://taxjustice.uk/blog/close-5-tax-loopholes-to-raise-over-7-billion-a-year [Accessed 29 Jun. 2025].

The Money Charity. (2024). The Money Charity’s Money Statistics Report June 2024.

[online] Available at: https://themoneycharity.org.uk/money-statistics/june-2024 [Accessed

29 Jun. 2025].

World Bank (2025). GDP Growth (annual %) - United Kingdom. [online] Available at:

https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZGend=2021&locations=GB&start=1996& [Accessed 29 Jun. 2025].