Wealth accumulated through rising property values must be tackled to avoid growing inequalities, a think tank claims.

The Institute for Public Policy Research says property wealth has grown disproportionately compared to wages. For most people, their homes have outpaced their earnings this century, with house prices more than tripling since 2000, while individual employee earnings have only doubled.

The think tank’s report, which says we are in an era of ‘big wealth’ with a high private wealth to national income ratio, warns that without intervention, the divide between the ‘have-a-lots’ and the ‘have-nots’ risks solidifying social and economic divides, blocking opportunities for millions.

It claims there’s been a collapse of home-buying in the 21st century. 

“As house prices have soared, there has been a swing of more than 10 percentage points across the entire working-age population, away from home-buying with a mortgage and towards private rentals, which are often costly and insecure” the IPPR claims.

It continues: “Over the past 20 years, the proportion of 35 to 64 year-olds in private rented accommodation has almost tripled. It has almost doubled for 25 to 34 year-olds, and grown from 46 per cent to 74 per cent for 16 to 24 year-olds.

“According to the latest official data, the wealthiest 10 per cent own around half of all wealth, while the bottom 30 per cent own little more than £1 in every £100.”

Demographic analysis shows those in the southeast, men, and white people are on average wealthier than their counterparts, and the think tank suggests that economic progress and financial security now depend relatively more on inherited wealth and relatively less on individual work, undermining the social mobility traditionally achieved through employment.

“For those born in the 1960s, inheritances typically represent a boost worth 8 per cent of average earnings, for the 1980s cohort that is projected to rise to 14 per cent. Those on the wrong side of this divide can no longer catch up by putting in longer shifts” according to the IPPR.

The report makes a key new distinction between what it calls ‘good wealth’ and ‘bad wealth’. 

For example, wealth derived merely from owning land or other scarce commodities, and divorced from the production of any new value, is bad wealth, while wealth derived from the creation of a new asset, is compatible with a sustainable environment or creates good jobs, is good wealth.

The report argues that current approaches to social mobility are reaching their limits. If life chances depend less on education and more on inheritance, policy must adapt accordingly. 

The paper proposes three ways to tackle the problems of unproductive ‘Big Wealth’:

• Making Big Wealth pay its way: by shifting the overwhelming reliance of tax revenue from income towards wealth, for example by increasing inheritance tax;

• Adapting to Big Wealth: by strengthening the social safety nets – such as affordable housing, public services and adult social care – to reduce the exposure of for low-wealth households;

• Differentiating between ‘good wealth’ and ‘bad wealth’: to deliver policies that support wealth derived from productive and sustainable assets instead of wealth accumulated through inflationary gains on property and finance.

Tom Clark, author of the IPPR report, says: “Wealth begets wealth, and the children of the very wealthy don’t just inherit more, but thanks to gold-plated education, introductions to the right social circles and financial cushioning that enables them to take more chances in their careers, they will also earn more and have better life chances to spend their time as they wish.

“The first budget of the new Labour government took a few extremely tentative steps to address some of the issues associated with ‘Big Wealth’, and even that is running into an almighty backlash. However the reality is that a lot more still needs to be done.”