Scots are now, collectively, a trillionaire, but the soaring cost of living means many feel far from rich, writes Bill Jamieson.
Household wealth in Scotland has broken through the £1 trillion mark – but poverty is getting worse. Inflation measures remain low – but prices of basic items are soaring. We have record numbers in work and average earnings are rising – but a Scots academic warns foodbanks have become a necessary part of the landscape of social support.
Welcome to the paradox of life in Scotland. Seldom have measures of our economic and financial well-being pointed in such conflicting directions. Are we richer? Or poorer? Is there more inequality or less? Is life getting better? Or are we stuck on a treadmill of ‘just managing’?
Better off, surely. We are citizens of the world. And across the world, more than a billion people have been raised out of poverty. At home, we enjoy a greater array of goods and services than any previous generation, together with higher standards of living and well-being.
Last month even the normally lugubrious Institute for Fiscal Studies published a study showing that, helped by record numbers in work, the incomes of the least well-off households are rising at a healthy pace, faster in fact than among their middle-class and wealthy counterparts, pushing income inequality to a 30-year low.
And a separate report from the Resolution Foundation shows that the total wealth owned by Scots households is now more than £1 trillion, following increases in property values and pension pots – equivalent to more than five times the value of the nation’s economic output in one year.
The median Scottish household – with half the country more wealthy and one half less so – was found to have £237,000 in wealth (UK figure: £259,000).
Do such findings mean a lot, or a little? Aggregate numbers of this sort are an abstraction. By far the largest share of wealth – some £543 billion – is in pension pots. The median Scottish household is thought to have £70,000 put aside in pensions (higher than the UK average of £58,000).
Financial wealth, including investment products such as shares and bonds, comes to £100 billion in total, and this, it notes, is very unevenly spread. Physical wealth – furniture, heirlooms, cars, works of art, electronic gadgetry and mobile homes – is reckoned at £122 billion. But such figures have little meaning for many. The report also finds that a quarter of Scots have savings of less than £500.
The research comes with a call for the tax system to re-allocate wealth. It says there should be more focus on how wealth is spread. Douglas Hamilton, chair of the Poverty and Inequality Commission set up last year by the Scottish Government, says: “The only thing more staggering than the level of private wealth that is held in Scotland, is the extremely high level of inequality that exists.” We will need, he adds, to start looking at how we can ensure a more equitable distribution of wealth.
Now we might take comfort in the ultra-low levels of inflation over the past decade that have helped households to cope. After all, looking at official data, isn’t the Consumer Price Index rising by just 2.4 per cent a year – having been subdued for a decade?
But while prices of many items like TVs, domestic appliances and personal computers may have tumbled, the cost of basic essentials has climbed ever upward.
The Joseph Rowntree Foundation cites research showing energy bills that are now more than 40 per cent higher than a decade ago; bus travel is 65 per cent more expensive in 2018 than in 2008; the average price of a full-time nursery place for a two-year-old is now £229 a week, having risen by well over 50 per cent. A weekly food shop for a single person has gone from £29 to £44 a week. If you are casting round for an explanation as to why many households have been cutting back on non-essential household items, look no further.
Arguably the gloomiest assessment of our fortunes has come from Professor John McKendrick of Glasgow Caledonian University. Demand for foodbanks and crisis funds, he warns, will continue to rise as the UK Government “shows a disregard for the realities of poverty”. He says poverty has continued to deepen across the UK, with life for the most vulnerable in society becoming more stressful. The co-founder of the Scottish Poverty and Inequality Research Unit argues that the UK Government goal of “ending poverty” in the country by 2030 is a remote possibility without a significant change in policy direction at Westminster.
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So much, it seems, for the trillion-pound wealth of Scottish households. Poverty is still rife and it is tempting to blame “inequality” for everything. But it is more complex than that. Demographic and behavioural changes have also had an impact. Greater than the divide on incomes is the divide across generations. In every five-year period since 1965, each successive cohort of Scots has had less wealth than their predecessors at the same age.
Then there is demographic change behind the ever-later arrival of the ‘legacy cascade’: older parents continue to build up wealth, but it is being transferred later to their children. Says Resolution Foundation director Torsten Bell, “What you inherit, rather than what you earn, is set to become a much more important determinant of your lifetime living standards in the years ahead.” But when you inherit is also relevant. Those who stand to inherit wealth when their parents die are having to wait longer, because their parents are typically living longer. The peak age at which the average millennial, now aged 20 to 35, will outlive both parents is around 60.
Meanwhile population numbers continue to rise with more demands on health, housing and welfare services. There has also been more separation and divorce and single-person households struggling while living as a couple tends to be more economic.
But absolute poverty has been reduced. Higher household wealth is surely something to cheer for. We have record numbers of people in work and earning money. Consumer spending is rising.
Many pensioners are also significantly better off than a decade ago. And government coffers are being helped by higher receipts from income tax and VAT. Let’s not blind ourselves to the fact that the glass that looks half empty is the same one that is also half full.