Bill Jamieson: Tackling inequality no easy matter

The effects of wealth inequality in Scotland are easier to highlight than they are to counter. Picture: Phil Wilkinson

Food banks across the country; “severe” and “extreme” poverty – and now disturbing figures on gross wealth inequality. What is the state of Scotland?

We revelled in being told last year that we were among the wealthiest countries in the world. But you would struggle to square this with the figures that have poured out from the Scottish Government in recent days.

Arguably the most troubling of all were those just released on the gap between the top 10 per cent of wealthy and those at the bottom of the wealth ladder.

They cannot but incite calls for action to reduce the disparity and create a more equal Scotland – or at least one where the disparities in wealth are less troubling.

That certainly accords with the views of most Scots. And it is an issue that the SNP has made clear it attends to address. But are these stark and damning figures all that they seem? And how realisable is that ambition?

We don’t have to venture far into the details to see what a challenge – indeed, an impossible challenge – this is likely to be.

The headline figures are certainly stark – as are the political implications that are deemed to flow from them.

The wealthiest 10 per cent of households, according to the Scottish Government report, Wealth and Assets in Scotland 2006-12, own nearly half the country’s wealth. Between 2010 and 2012, the least affluent 30 per cent of households owned just 2 per cent of all personal wealth, mainly property and personal belongings.

The wider report, which covered the period from 2006 to 2012, before and after the economic downturn, found that 2 per cent of households owned 17 per cent of all personal wealth in Scotland.

By contrast, the poorer half of Scottish households owned just 9 nine per cent of all personal wealth and three out of ten poorer households have no savings or pensions.

Social justice secretary Alex Neil lost no time in declaring that the report highlighted the “vast inequality that still exists in Scotland. It’s not right that the wealthiest 10 per cent of households have 20 times more wealth than the least wealthy 30 per cent”.

And not to be outdone, shadow Scottish secretary Margaret Curran said: “Those at the top continue to thrive whilst working families across Scotland struggle to make ends meet.”

However, when we look at the details of the figures, that objective may be none too easy, and indeed may severely impact on the livelihoods and well-being of many.

The aggregate total wealth of private households in 2010-12 stood at £714 billion. When we look at how this total is comprised, we see a rather different picture. By far the largest component consists of pension savings, at £302.5bn or 42 per cent. Arguably this pension total should be taken out of the calculations on wealth inequality.

By its nature it is not spread evenly across the whole population but reflects the deferred spending or savings by many hundreds of thousands of people who have chosen to put money by for their retirement. And the pension total is understandably skewered towards a minority of the population – in particular the over 50s.

Their “pension pots” may give them the appearance of being “wealthy”. But these savings have to see them through retirement, a period which, because of improving longevity, could well stretch 30 years and more ahead. One benefit of pension saving which should not be lost on Mr Neil, as his job title also extends to pensions, is that the more prudent that we are in saving for those years when we are no longer in work, the less likely it is that we would need to fall back on the state for assistance.

The next largest item is property wealth (the value of property minus mortgage property debt). This stands at £227.5bn, or 32 per cent of Scotland’s wealth.

But here, too, there would be major obstacles in pursuing wealth equality. Many have lived in properties for 20 years or more whose value has risen with house price inflation. Is it fair to tax as income the effect of inflation? And how popular would it be, for example, to impose a “bedroom tax” on privately owned properties, forcing those with larger properties to trade down – assuming they could find a buyer?

Next comes physical wealth – the value of items such as cars, household goods and jewellery. This comes to £96.7bn, or 14 per cent of the wealth total. Presumably we stop short of forcing households to disgorge their household furniture and trinkets in compulsory boot sales – with the car thrown in free.

Next comes financial wealth – the value of savings and investments minus non-mortgage borrowing or debt. This comes to £87.2bn, 12 per cent. Here we could see a resort to higher levels of taxation or the removal of tax-sheltered incentives to save such as Isas. Which government would secure a mandate for such a policy, and which country could hope to sustain a financial services sector if savings were to be discouraged in this way?

This leaves the option of higher levels of personal taxation – raising the standard rate of income tax or the higher rate. But here, too, there are big constraints. There are 2.65 million taxpayers in Scotland, of whom 86 per cent pay the standard rate and the just over 10 per cent the higher rate. A small fraction were liable to the top rate in 2009-10. A Scottish Government intent on tackling wealth inequality by higher taxation on top incomes would need to study its behavioural effects before arriving at an accurate estimate of the extra revenue raised. Higher rate taxpayers may opt to move. Savings would fly. And there would also be employment losses as policies that impaired Scotland’s competitiveness took effect.

Capital as well as income is now more mobile than ever. The resulting loss would could end up costing Scotland far more than it would ever gain by attempting to tackle wealth inequality in this way.

All this does not mean we are totally helpless in seeking to achieve a healthier and wealthier Scotland. There is much to be done in improving educational attainment, in skills training and helping people into work. But the priority has to be ensuring a successful and above all competitive Scottish economy to attract the full range of skilled and well-paid jobs. Nothing less will do the trick.