The winners in the UK Wealth Experience have been homeowners and the top 20%

Today has seen some research published into the UK’s experience over the credit crunch era by the Social Market Foundation. Regular readers will recall that it was only last Wednesday that I analysed this claim from the Institute of Fiscal Studies.

Average income back to around pre-recession level


It turned out that the conclusion was in fact driven by the inflation measure used and that changing this assumption gave very different answers.

In total, this means that projected 2014–15 real median income is further below its 2007–08 level if CPI is used (3.0%) than if RPIJ is used (0.4%).


That is a fair bit lower! If we used the headline RPI then you can add around another 3% so it would be 6% lower. I guess that living-standards are 0.4% lower or 3% lower or 6% lower does not make such a great headline does it?! I wonder how much of the media will spot that?


Accordingly we were left with the conclusion that UK living-standards had in fact fallen with the amount determined by the inflation measure you feel is the most accurate. Sadly for the IFS this is the opposite of what they broadcast through the media. Perhaps we now know why politicians recommend the IFS!

What does the Social Market Foundation say?

It opens with something we have discussed many times on here.

Following the financial crisis, UK households experienced the longest period of falling real wages  since records began. They were poorly prepared for this, having run down savings and taken on increasing amounts of debt during the 2000s.


This is a somewhat different emphasis to that provided by the IFS and I would think that the majority of readers would think that it is much more in line with their personal experience. Also tucked away is something that deserves more exposure.

saving dramatically increased and indebtedness fell.


This highlights one of the policy errors of the Bank of England as the hapless Mr Bean (Deputy Governor Charlie Bean) urged savers to spend their cash.

At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.


Savers will of course still be wondering when “they will be doing very well” as deposit rates have fallen even further since then. By contrast Sir Charles Bean retired on an index-linked (none of the CPI rubbish for Charlie as he receives the full RPI!) of £119,600 per annum at age 60 I am sure our pension experts can value this for us. For some reason the Bank of England has stopped doing so! Anyway we can conclude that Charlie will not need to dip into his savings in retirement.

The SMF conclude that there are very different experiences

Just like Charlie those at the top of the spectrum – mostly defined by themselves – seem to have done very well.

The top 20%: The top income group are far more financially secure today than those in the top incomes going into the downturn. Median financial wealth in this group increased by 64% between 2005 and 2012-13. They are now less likely to be in debt compared to the middle-income group – a reversal of the pre-crisis trend…The top 40% have also seen an improvement, although the increase in financial security is not as substantial.


Also the next group of winners is perhaps even less of a surprise.

Homeowners have been able to add more to their savings than other individuals, as they have benefited from lower housing costs. ……This is above and beyond the
any gains made from increases in property values.



We can add to this as we know that since the surveys above were taken then house prices have risen substantially. From the UK ONS.

UK average house prices increased by 9.8% over the year to December 2014


Indeed we can also factor in that the top 20% are of course more likely to live in London where in spite of a recent cooling the rises have been more substantial.

Annual house price increases in England were driven by an annual increase in London of 13.3%


The house price boom will mostly have taken place after the period of these surveys as UK house prices turned  in April 2012.

The Losers

If there are winners then sadly there also have to be losers in this arrangement and we see some familiar concepts at play starting with our poorest citizens.

The bottom 20%: The lowest income group are less financially secure today than those on the lowest incomes going into the downturn. By 2012-13, median financial wealth among the lowest income group was 57% lower than in 2005. Over the same period, the proportion of those on the lowest incomes with non-mortgage debt increased; and the value of that debt rose faster than incomes – by 67%.


Have they borrowed to keep going? There are all sorts of troubling consequences here.

Also the generational war which I have discussed previously pops up in the SMF analysis. The emphasis used is mine

26-35 year olds: The intergenerational gap in incomes and wealth has widened. Wages for younger workers fell substantially during the downturn – at a greater rate than the average. 26-35 year-olds today are less likely to own a home. In 2005, 74% of 26-35 year olds owned a home; by 2012-13, this had dropped to 54%.


Are these the individuals that “Help To Buy” is “helping” to buy what I consider to be overpriced houses? What could go wrong here?

I guess younger readers will be singing along to Paul Simon right now.

We work our jobs
Collect our pay
Believe we’re gliding down the highway
When in fact we’re slip slidin’ away
Slip slidin’ away
Slip slidin’ away


Indeed the gaps have widened

Most of the deleveraging that took place in the aftermath of the crisis happened among the top income group. Those on the lowest incomes have not built up their financial resilience. On average, they have less than six days’ worth of income in savings.


Two of my themes are at play here. Firstly the disastrous policy error made by the Bank of England when it “looked through” higher inflation and let it rip apart the earnings of our youngest and weakest. Secondly the interrelated theme that there is a high standard deviation of experiences or more simply we are splitting apart as a nation.


There is much to consider here and in so far as it goes we see a conclusion which is broadly in line with what we might have expected. However it does have weaknesses as highlighted below.

Pension wealth, the purpose of which is to provide an income in later life, rather than to help cope with hardship
during working lives, is excluded from our analysis.12 Similarly, housing, whilst an important component of overall wealth, is not examined in detail in this report due to the fact that, as an asset, it is relatively illiquid.


Slightly bizarre don’t you think to exclude the largest -especially these days!- and one of the largest sources of wealth! I have helped out already with a view on the ever growing household wealth or at least what it is perceived as. So let me now look at pensions. One rough and ready indicator is the value of the FTSE 100 equity index which passed 6000 to wards the end of 2012 and has recently nudged towards 7000. Those who have invested abroad such as in Germany or Japan have done a lot better as we mull the way that the QE era has increased wealth for the better-off one more time.

In a separate release we have been told this by the UK Office for National Statistics.

Our new analysis shows that between 2007 and 2012, of those aged 18 to 59 who were in income poverty1, but then entered employment, 70% moved out of poverty. The other 30% remained in poverty, despite entering employment.


This is heartening for the 70% who benefit but for the other 30% well the same song strikes up again.

Slip slidin’ away
Slip slidin’ away
You know the nearer your destination
The more you’re slip slidin’ away


Or as Seasick Steve puts it.

Cause I started out with nothing
and I’ve still got most of it left


10 thoughts on “The winners in the UK Wealth Experience have been homeowners and the top 20%

  1. The IFS reminds us, in case we’ve forgotten the lessons from the OBR, the NSO et al, that “Independent” is not to be confused with “Impartial”.

  2. Hello Shaun,

    To get a little perspective here .

    So 2008 we had 61.8 million people and in 2014 we had officially 64.1 million , and increase of 2.3 million

    Households were 25.7 million then now we have 26.4 million or more ( the latest figure I got was for 2013)

    Even from the HMG web site I see …..

    “The fastest growing household type was households containing two or more families”

    Why do we expect housing to keep going up , well the fact are known to everyone – we dont build enough…

    And even if we did , when would all the Green belt self-off merchants be satisfied?

    I’ve posted before even if we had the population density of London rolled out over the entire SE England ( including Norfolk/Suffolk) we can fit in 500 Million.

    Would that be enough ?

    As it is we will have multi-generational homes for decades to come as we will not like flats and will not build the infrastructure, let alone the actual housing, required .


    PS: ah yes seems my loved popcorn is following oil futures , still might see some drop as the pound soars away …

    • Hi Forbin

      Some of the house price rise is undoubtedly due to the rising UK population that you mention. However it is far from all of it as it was rising when house prices fell and then stagnated post credit crunch. It was the same old game in the UK od ramp the housing market to kick-start the economy and the “independent” Bank of England behaved just like part of our establishment.

      As to your popcorn don’t you wish that the corn was priced in Euros where the UK Pound is 1.40 and rising and not US Dollars where it is in danger of reversing through 1.50?

  3. Hi Shaun

    Great article as always.

    I just thought I’d highlight an article from the motley fool. It shows the unreported (from the MSM) impact of QE:

    So the economy will be 2bn short of dividends/investment from BT. And you have AGA which is a company run for the benefit of its pensions fund. Very similar to Mr Beans situation 😉

    • add in what came up the other day , pensions to show the results of -3% returns in their examples

      CTD is what we’re doing


      Sit back , watch the show , its going to be a doozy ! , pass the popcorn please!

  4. So all the cash created by the central banks over the last six years has gone into assets/stocks, old masters and Aston Martins, and NOT into wages for the masses, is that the bottom line?

    That would explain UK house price inflation – I know, we’ve ping-ponged before in the comments on supply and demand vs easy money, I side with the cheap loans and desperate government schemes driving HPI myself. My concern is that we’ve had massive inflation with assets, but when will it burst the banks into wages and consumer prices?
    If it keeps on raining,
    The levee’s gonna break
    I don’t want my morning KitKat to start costing me a tenner! Guessing this is tricky, as nothing seems to work in balance/make sense anymore in the new normal. Pound is mighty against the Euro but tumbling to the dollar, the Fed hint at a rate rise but Draghi has started QE, oil’s down again but we’re supposed to be in recovery/growth and gold hasn’t changed much from a year ago. I think there’s a case here for keeping your head whilst all others lose theirs but here’s a question for the board: if you had 250K sterling to invest for a one year return right now, what would you plump for?
    1 – buy Euros
    2 – buy a flat in Streatham to rent out.
    3 – buy gold
    4 – put the cash under the mattress, buy popcorn and join Forbin on the sofa.

    As things stand, I think I’d go for number 4.

    • Hi Peter

      To answer your question the answer is mostly yes and in addition the rises in prices for example seen in the UK pushed real wages lower. As to the Euro watching some of the Real Madrid game earlier made me think that stories of Gareth Bale returning to the Premier League are much more feasible at the Euro 1.40+ where the Pound £ currently trades.

      To buy Euros as a major trade I would wait for nearer 1.50 I think. UK house price’s have been pumped up and may fall post-election and 4 is so unfashionable it has a really good chance!

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