The wealthiest 10th of UK households own 44% of the nation’s wealth, whilst 50% of the least wealthy households own just 9% of the nation’s total wealth. How can this growing problem of wealth inequality be addressed?

A recent policy paper published by the Institute for Public Policy Research (IPPR) has proposed that all UK-born citizens should be given £10,000 when they reach the age of 25.

 

The proposal

The paper develops a working model for tackling endemic economic inequalities via wealth redistribution by establishing a Citizens’ Wealth Fund owned by and run in the interests of citizens which would pay a one-off capital dividend to 25-year-olds to invest in their futures, sourcing the money for this handout from a mixture of tax reforms and selling off various assets such as the government’s £24 billion stake in the Royal Bank of Scotland.

A lump sum of £10,000 at 25 provides the opportunity for young people to invest in their futures through helping to scale the property ladder and buy a house (home ownership among 25-34-year-olds fell from 59% in 2003 to 37% in 2015), invest in further education or start their own business.

The think tank asserts that providing every citizen with the means to invest in their future and take risks would equalise the ‘opportunity effect’ of holding assets, and will end the financial dependence of young people forging a career path or undertaking further study at university on excessive paternalism.

But is giving a handout to all 25-year-olds the most useful policy of wealth redistribution in 2018? Is giving £10,000 to me at 25 (in 5-and-a-half years’ time), a middle class, university educated, privileged white male who will never experience gender wage inequality simply due to the fact that he was born a man, going to be effective in counteracting wealth and income inequalities?

With the acute public funding crisis in the UK, perhaps the policy should stipulate that monies accumulated by the fund should be channelled in ways which help to challenge inequality more indirectly, but on a more societal level. The Citizens’ Wealth Fund certainly has the potential to become a fighting fund to challenge gender wage inequalities by contributing to child-care costs for working mothers, to save our NHS from a crippling funding crisis and improve our primary and secondary level education with better funding and afford economic assistance to socio-economically disadvantaged further education students who struggle to meet additional university costs stretching beyond their student loans.

Other models

The IPPR’s proposal aligns very closely with the Alaskan model, the Alaska Permanent Fund under which Alaskan citizens receive an annual dividend at $1,560 per year on average (funded by oil revenues). Although the proposed UK Citizens’ Wealth Fund pays a lump sum at 25 rather than annually, the policy proposals draw heavily on this idea of a lump sum paid out to all citizens. This would be the wrong route to take.

A better model comes from Australia: Australia’s Future Fund, funded in the main by investment returns made using the proceeds from the sale of the government’s holding of telecommunications giant Telstra. Australia’s Future Fund has three umbrella strands which instead of paying out a lump sum, tackle wealth inequality more indirectly, focusing on the poorer and more socio-economically disadvantaged strata in society.

The Disability Australia Fund finances Australia’s National Disability Insurance Scheme to support Australians with significant and permanent disabilities and their carers; the Medical Research Future Fund provides grants of financial assistance to support medical research and medical innovation to improve healthcare; and the Nation-building Funds invest in educational infrastructure in socio-economically deprived areas.

 

Difficult details

The IPPR’s Citizen’s Wealth Fund proposal also states that a £10,000 dividend should be paid to 25-year-old citizens born outside the UK who have held UK citizenship “for a number of years, eligibility specifically based on whether the individual was a UK citizen at the end of secondary education at 16.”

Many people would happily support this clause, but there is a danger that right-wing populists in the UK will seize on it, propagating rhetoric that the ethnic and socio-economic group of ‘others’, economic migrants and asylum seekers, are not only applying for UK citizenship to put a strain on our public services and welfare benefits system, but also want to gain UK citizenship for their children before 16 so that they are eligible for a £10,000 Citizens’ Welfare Fund dividend at 25.

This would appeal to the working class losers of globalisation who feel they have lost their predominantly manual labour jobs. Outsourcing and cheap migrant labour leave them without a share in a universal capital dividend. It would also appeal to the squeezed middle classes, who fear that their financial and class position is being threatened by parasitic ‘others’ socio-economically above and below them. Both the political and economic ‘elites’ who would introduce the Citizen’s Wealth Fund and the ‘others’ below them would primarily capitalise from their contribution to the Fund through taxation reform.

Indeed, this short clause may be the kind of wedge issue that UKIP are looking for to stage a revival in right-wing populist politics. To avoid this we must allocate the Citizens’ Welfare Fund to specific crises in public funding – in the NHS, education, and welfare benefits.

 

Overall, a bold step

A Citizens’ Welfare Fund is a bold policy proposal to tackle growing economic inequalities. However, we must reject the idea of using the funds to simply pay out lump sums to all citizens in favour of an overhaul of public service financing, ensuring that right wing-populists do not capitalise on the xenophobic imagery of an economic migrant or asylum seeker extending their hand across the English Channel for a £10,000 dividend.

There are details to be worked out, but the concept itself is compelling. As economic inequality continues to blight the UK and other western democracies, a debate on the merits of a Citizens’ Welfare Fund is worth having.