Pension Inequality and Property Prices

Causes and consequences of income inequality in the UK

The new ONS statistics indicate that there are large income disparities in the UK. In this regard, there are various causes of income inequality, as well as the consequences associated by it in the UK. Some of the causes and consequences of income inequality in the UK include the following (Mumtaz & Theophilopoulou, 2017). First, there is pension inequality, whereby in the recent years in the UK, richer households are able to increase their contributions towards private sector pension (for the wealthiest 30% of households in the UK, private pension wealth contributes the highest). The consequence is that increased importance associated with pensions significantly occurs in the UK despite poor returns of the stock market, thus reducing the value of certain pensions, as well as asset trusts. Second, there increased property prices, whereby, since 1960, the UK house prices have risen faster, as compared to the inflation rate as shown in the figure (1) below. A consequence to this is that property owners have been able to witness an increase rate of household prices as a result of the risen property prices (Pettingerm 2018). This has resulted into increased gap between the UK’s property owners and non-property owners. Notably, this has been exacerbated by the increase of second homes, as well as “buy to let,” which have enabled households to develop property portfolios.

Third, is the saving ability, whereby, people in the UK, having low income rarely have the capability of saving, owing to the fact that they have a high rate of marginal propensity to consume (Gough, 2018). On the other hand, people having higher income have a low rate of marginal propensity to consume, even after they have bought their necessities, and thus, they have the ability of saving. For instance, private pensions, and even personal savings account. This is as shown in the figure (2) below:

The fourth is growth in technology in the UK, which renders a state of joblessness in all skill levels. Notably, for unskilled workers, machinery performs many skills, which these workers should do. In jobs related to packaging and manufacturing, it is evident that machinery works efficiently and effectively, and as such, the kind of jobs involving repetitive tasks have over the years been eliminated (Brewer & Wren‐Lewis, 2016). As such, skilled workers do not live in fear of losing jobs. However, rapid development in the UK’s artificial intelligence ultimately enables computers, as well as robots to perform various knowledge-based jobs. Finally, gender selection causes income inequality, however much it may seem difficult justifying such differences. The UK’s wage gap has not been wholly explained even upon accounting for certain core factors affecting earnings, which include discrimination and tendency of women considering other factors aside from pay when searching for work. The only thing that is for sure is that gender contributes to wage difference in the UK and thus economic inequality (Cribb et al., 2018).

References

Brewer, M., & Wren‐Lewis, L. (2016). Accounting for changes in income inequality: decomposition analyses for the UK, 1978–2008. Oxford Bulletin of Economics and Statistics, 78(3), 289-322.

Cribb, J., Norris Keiller, A., & Waters, T. (2018). Living standards, poverty and inequality in the UK: 2018 (No. R145). IFS Report.

Gough, J. (2018). Using Price-Adjusted Income Data to Measure Regional Income Inequality Across the UK. World Economics, 19(1), 47-58.

Mumtaz, H., & Theophilopoulou, A. (2017). The impact of monetary policy on inequality in the UK. An empirical analysis. European Economic Review, 98, 410-423.