Stewart Lansley argues that too much of the UK’s abundant wealth is the wrong kind.
As the dust settles on Labour’s budget, it is worth recalling that Keir Starmer went into the 2024 election promising to put “wealth creation” at the heart of Labour’s economic mission. It sounded reassuringly pro-growth and pro-business. But the phrase hides a crucial question: what kind of wealth are we actually creating?
Britain’s problem is not a shortage of wealth in the abstract. The UK is richer on paper than at any point in its history. The problem is that too much of that wealth is the wrong kind – “bad wealth” – and it is driving both low growth and rising inequality.
Good wealth vs bad wealth
Good wealth is created when innovation, investment and productive work expand the real capacity of the economy and improve people’s lives. That includes obvious things like new medical technologies and clean energy, but also the vital infrastructure of daily life: decent local shops, reliable buses, childcare, social care, and well-run public services. When these improve, the “economic cake” grows in a way that can be shared widely.
Bad wealth, by contrast, is accumulated through extraction rather than production. It comes from activities that enrich a few while weakening the underlying economy and social fabric: financial manipulation, excessive dividend payments, monopolistic mergers, rent-seeking in property and utilities, and speculative asset bubbles. It shows up as soaring fortunes at the top alongside stagnant wages, insecure work and crumbling services.
Over the last four decades, the balance in the UK has shifted decisively towards bad wealth.
A rich country that feels poor
On the surface, Britain looks asset-rich. Total private wealth – property, financial assets and other holdings – is now more than six times the size of annual GDP, up from about three times in the 1970s. Yet since the 2008 financial crisis, economic growth and productivity have been chronically weak.
In the UK, the average fortune of the richest 200 people has exploded from around 6,000 times that of the average person in 1989 to roughly 18,000 times today.
Crucially, much of this new wealth has not come from building productive capacity. More than half the rise in household wealth since 2010 has come from rising asset prices, above all, property. That means large sums are locked up in housing and financial portfolios, rather than being reinvested in new productive activities.
The distribution is brutally skewed. Globally, from the mid-1990s to 2021, the top 1% captured 38% of all growth in personal wealth, while the bottom half of the world’s population received just 2%. In the UK, the average fortune of the richest 200 people has exploded from around 6,000 times that of the average person in 1989 to roughly 18,000 times today.
“The test of our progress is not whether we add more to the abundance of those who have much,” declared American president Franklin D Roosevelt in 1936. “It is whether we provide enough for those who have too little.”
Cash Cows
One reason Britain invests so little is that large companies have been turned into cash cows, funnelling profits to shareholders and executives instead. Over the last 40 years, dividend payouts have consistently outpaced wage growth. By 2020, FTSE 350 companies were paying out around 90% of pre-tax profits in dividends – often financed by borrowing.
Take Thames Water, the water company. Its private owners have loaded it with debt, extracted dividend flows, underinvested in infrastructure, and left the system close to collapse, with leaking pipes and sewage in rivers.
This pattern is repeated across sectors: aggressive financial engineering, high payouts, and cost-cutting in maintenance and staffing. The system generates handsome “paper wealth” for some, but undermines long-term resilience and service quality.
Public wealth has been hollowed out. The value of publicly owned assets has fallen from around 30% of GDP in the 1970s to about 10% today. Control over essential infrastructure has shifted to private owners, while the state’s balance sheet has weakened.
At the same time, Margaret Thatcher’s 1980s promise of a “property-owning democracy” has collapsed. Council house sales and privatisations initially spread asset ownership. But home ownership has since fallen from 71% in 2000 to about 65% in 2024, with sharp drops among 25–34-year-olds. Getting on the ladder now depends heavily on the bank of mum and dad. Nearly three in ten 18–34-year-olds live with their parents.
Meanwhile, public wealth has been hollowed out. The value of publicly owned assets has fallen from around 30% of GDP in the 1970s to about 10% today. Control over essential infrastructure has shifted to private owners, while the state’s balance sheet has weakened.
The Piketty problem
Economist Thomas Piketty has described a built-in tendency in modern capitalism for returns on capital (dividends, interest, rents, capital gains) to grow faster than the overall economy. When that happens, existing asset holders pull away from everyone else, and inequality widens automatically.
He initially suggested that only war or major social upheaval had historically broken this pattern. More recently, he has acknowledged that democratic policy can do the job – but only if governments are willing to confront entrenched wealth.
Post-war Britain showed that it was possible. Highly progressive taxation, stronger regulation, and a more egalitarian political climate limited the growth of giant fortunes and kept returns on capital closer to overall growth. Today, reversing course would require similarly bold moves.
Six shifts to fix bad wealth
The UK will not escape its trap of low growth and rising inequality by fiddling at the margins. It needs a deliberate strategy to turn bad wealth into good wealth. That means redirecting resources from extraction to productive investment and spreading control over assets more widely. Key elements of this redirection could include:
- shifting the tax balance from work to assets;
- curbing dynastic inheritance;
- exploring a whole-wealth tax;
- rebuilding public and social ownership;
- creating citizens’ wealth funds; and
- giving everyone a stake in assets.
Taxing wealth more heavily
Income from employment is taxed at roughly a third on average; wealth at under 4%. Aligning capital gains tax rates with income tax, updating and reforming council tax into a progressive property tax based on current values, would start to chip away at excessive concentrations at the top and fund social infrastructure.
Curbing inheritance
Inheritance remains a powerful driver of inequality by reinforcing past privilege. Only a small minority of estates pay inheritance tax, and the wealthy can often avoid it. As Adam Smith argued centuries ago, “A power to dispose of estates forever is manifestly absurd,” Tightening reliefs, closing avoidance routes and using the proceeds to fund public goods would convert “dead money” into productive resources.
A whole-wealth tax
A small annual levy on very large fortunes – for example, 1% on wealth over £2 million – could raise substantial revenue while touching only a narrow elite. Framed as a time-limited “solidarity” measure to finance care services, green infrastructure or children’s services, it would likely command strong public support.
Public and social ownership
Utilities such as water have shown the costs of pure profit-driven models: underinvestment, environmental damage and high payouts to shareholders. Bringing more services into public, municipal or cooperative ownership – and tightening regulation where private provision remains – would aim to turn them from cash machines into reliable, long-term service providers.
Creating citizens’ wealth funds
Rather than leaving key assets in private hands, governments can build collectively owned funds whose returns benefit everyone. Examples already exist: Alaska’s oil-based Permanent Fund, or the Shetland Islands’ trust funded by oil payments. A UK citizens’ wealth fund capitalised from higher wealth taxes, state assets and public stakes in major firms could pay universal dividends or finance public services.
A stake in assets
Schemes like the (now abolished) Child Trust Fund were imperfect, but pointed in the right direction: guaranteeing each citizen a stake in economic success and some share in the nation’s wealth. Future models could combine asset endowments, access to affordable housing, and community wealth funds that invest in local infrastructure under citizen control.
A political choice
Chancellor Rachel Reeves had promised that the wealthy would “play their part” in fixing the public finances, but has ruled out a dedicated wealth tax and so far proposed only limited changes to inheritance and capital gains. Without more ambitious structural reform, the underlying dynamics of bad wealth will remain intact, and inequality will keep widening.
Britain is at a hinge point. Persisting with a model that rewards extraction over production will mean stagnant living standards, deepening resentment, and growing instability. A different path – one that treats wealth as a tool for shared security and opportunity rather than a trophy for the few – is available. But it demands a government willing to challenge the winners of the current system rather than manage around them.
