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The UK has the third-largest number of dollar millionaires after the US and China – more than 3 million – but whereas in the rest of the world the ranks of the rich are expected to rise over the next five years, here they are projected to fall… to 2.5 million.
So says UBS, the huge Swiss bank, in its annual Global Wealth Report. It’s not hard to see the headlines about the rich fleeing the country because they fear Labour will put up taxes, and there is some truth in that. But the underlying story is both much more complicated and much more interesting.
Start with the question – why does the UK have so many millionaires?
Houses and new homes
The answer is partly because a lot of rich foreigners have chosen to live here, but more importantly, it is because UK house prices are high by world standards and many people have some form of funded pension plan.
Obviously you would expect us to have fewer rich people than the US and China, but why more than Germany and Japan, both larger economies? The answer is that Britons are richer than the inhabitants of both those countries. We rank number 13 in the world in terms of average wealth, with $350,000 per head, whereas Germany is 17th with $265,000 a head, and Japan is 23rd with $220,000. The richest country is Switzerland, at $710,000 a head, followed by Luxembourg, Hong Kong, the US, Australia and Denmark.
If you take median wealth – that’s the middle person, with as many of the population richer than them as poorer – the UK moves up the rankings to number eight, with $164,000 a head, ahead of the US.
That’s really a better way of measuring wealth, because obviously a tiny number of billionaires pulls up the average but doesn’t reflect the wealth of the mass of people in the middle. If you look at wealth inequality, that has increased a bit since UBS started doing this exercise in 2008, but we are still somewhat more equal than the Western European average.
Wealth exodus
So what about the projected change, with the numbers of millionaires rising in almost every country bar the UK? The only other place in the world where the number is projected to fall is the Netherlands.
The explanation, according to Paul Donovan, chief economist of UBS Global Wealth Management, is partly because of global shifts in capital, partly because of rich Russians leaving as sanctions against their country bite, partly because of foreigners leaving for lower-tax jurisdictions such as Dubai and Singapore, and partly because of the “non-dom” changes introduced by the Conservative government. Labour has said it will end that status altogether, though Donovan did not cite the election of the new government as a factor.
It is a startling conclusion, but is it right? If it were, then the outlook for the UK under its new government would indeed be gloomy, because not only are half a million millionaires expected to leave, but it would seem to imply that there would be no growth in the wealth of those who remained. No increase in house prices, no rise in the value of pension pots, no return on other savings.
It is certainly a fascinating piece of research. Its more general conclusions about the shift of wealth to Asia, the huge transfer that will take place as older people die and pass their assets on to their children and other beneficiaries, and the point that barring some catastrophe the world will become significantly richer over the next five years – all these are spot on.
But on this particular issue – the plunge in the number of millionaires in the UK – I think it will be proved wrong for three reasons.
A sunnier outlook
First, if it becomes clear that significant numbers of wealthy people are leaving the country – not just non-doms but a lot of UK professionals and entrepreneurs – then the Government will take action to check the outflow.
Rachel Reeves, the Chancellor, is not stupid. If tax revenue falls and if people choose other locations to start their businesses, she will bring in schemes to retain the revenues and encourage start-ups here. Labour has to keep the business community onside if it is to achieve its aim to boost growth.
Second, the UK is beginning to look relatively stable politically compared with what is happening in France, and what may happen in Germany and maybe even in the US.
Third, I cannot see a nationwide collapse in UK asset prices. Sterling is still relatively undervalued, UK equities are still cheap by US standards, and as for house prices, well, it is easy to see them on some sort of plateau as wages catch up. But a crash?
Yes, changing planning restrictions will enable more homes to be built, but there is such a backlog in the construction of homes that people need that a fall in nominal values seems most unlikely.
So let’s welcome this UBS report. Let’s acknowledge that the balance of wealth globally will continue to shift towards people in the emerging economies. And let’s celebrate the probability that wealth will spread as well as deepen.
But let’s not be too gloomy about the UK becoming poorer under the new Government. It probably won’t happen.
Need to know
Wealth is such a fascinating issue and the sketch here only scratches the surface of the research that UBS has carried out. Some of the most interesting details are about the flows of money that will inevitably take place over the rest of this decade, rather than the absolute levels.
The flows fall into two broad groups. One is the generation of new wealth by people who are both doing well and saving their earnings. The other is the passage of assets down the generations.
On the first, the big point is that fast-growing economies create more opportunities to earn and to save than slow-growing ones, and that many of these economies are in the emerging world.
The rise in the number of millionaires in China is astonishing if you think back to where the country was before the reforms of Deng Xiaoping that began in 1978. I do feel that his contribution to the welfare of his people ranks him as the greatest leader of the 20th century.
It will be really interesting to see whether Narendra Modi can set in train a similar advance for India. If he is managing to do that, it will give him a claim to a similar accolade in the 21st century.
On the second issue, the intergenerational transfer of wealth, the most interesting social question is surely whether it will reduce inequality or increase it. The report notes that wealth inequality has risen slightly in the UK over the past 15 years, though we are relatively equal compared with most of Western Europe and much more equal than the US.
The most recent tally of wealth in the UK from the ONS was published in January 2022 and only shows the situation in 2020. But the striking thing in that report was the fact that the richest group of people were where the head of the household was retired – it looks at data of households rather than individuals.
The median wealth of that household was just under £500,000. Unsurprisingly, for people in the middle, their property was their largest component, while for the richest, it was their financial assets.
I would love to see more data about how assets are passed down when people get older. There is the huge question as to whether it concentrates wealth or disperses it. Is the bank of mum and dad a socially inclusive force, or a divisive one? Might a change in the financing of care for the elderly, such as the cap on the cost which keeps being postponed, change the timing of the passing down of wealth?
So lots of questions and not many answers. But one thing I am sure about: this focus on what happens to wealth – and wealth inequality – is just as important as the attention paid to income inequality, maybe more so. Thanks again to UBS for highlighting it all.
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.