Wealth and Assets in Scotland, 2006–2014

6 Wealth Inequality in Scotland

This chapter continues the discussion on the distribution of wealth in Scotland. There is not a single agreed measure of inequality - different measures reflect different aspects of inequality. Preceding sections have provided a description of the distribution of wealth. In this section, two measures of inequality are used to monitor whether wealth inequality is increasing or decreasing over time. The first, the Gini coefficient, is a widely used measure of inequality. The second, the Palma ratio - which is based on the ratio of ownership by the top 10% compared to the bottom 40% - is consistent with the Scottish Government measure of income inequality in the Solidarity target and is reported here for the first time.

6.1 Gini coefficient

In contrast to the previous chapter, where the wealth distribution analysis was based on deciles and median values, this section considers the distribution of household total net wealth and its four wealth components using Gini coefficients. The Gini coefficient is the most widely used summary measure of inequality. It is expressed as a number between 0 and 1. A Gini coefficient of 0 represents perfect equality, whereas a Gini coefficient of 1 represents perfect inequality, with one specific group or person owning all wealth and the rest owning nothing. The lower (higher) the value of the Gini coefficient, the more equally (unequally) the wealth is distributed.

Table 6.1 shows the Gini coefficients for total net household wealth and its four components over time. For the first three survey periods, inequality in distribution of total net wealth was decreasing. However, there was no change in wealth inequality in the latest period (between 2010/12 and 2012/14):

• Net financial wealth remains the most unequally distributed component of household wealth, with a Gini coefficient of 0.89 in 2012/14. Inequality in the distribution of net financial wealth decreased in 2012/14, following an increase in 2010/12 around the levels seen in 2008/10.
• Private pension wealth was the second most unequally distributed household wealth component. Inequality of private pension wealth decreased consistently over the four survey periods. However, the distribution remains highly unequal, with a Gini coefficient of 0.73 in 2012/14.
• Net property wealth was more equally distributed than financial or private pension wealth. The inequality in distribution of property wealth has been stable across all survey periods - although it remains quite high, with a Gini coefficient of 0.65 in 2012/14.
• Gross physical wealth remained the most equally distributed wealth component, with a Gini coefficient of 0.47 in 2012/14. This is because all households own some physical wealth, such as washing machines, freezers, telephones etc. In the latest period, however, there was a small increase in the inequality of physical wealth (up from 0.45 in 2010/12).

Table 6.1 Gini coefficient, Scotland 2006/08 - 2012/14

	2006/08	2008/10	2010/12	2012/14
Property wealth (net)	0.65	0.64	0.64	0.65
Financial wealth (net)	0.90	0.89	0.93	0.89
Physical wealth (gross)	0.47	0.48	0.45	0.47
Private pension wealth	0.79	0.77	0.74	0.73
Household total net wealth	0.66	0.63	0.61	0.61

Source: Wealth and Assets Survey, ONS

6.2 Changes in the share of total net household wealth and its components

Although the Gini coefficient is the most commonly used measure of inequality in distribution, it does not provide information about where the actual concentration of wealth exists ( e.g. in the middle or at the extremes). Moreover, it has been argued that the Gini coefficient is more sensitive to changes in the middle (Atkinson, 1970) and therefore, it does not explicitly capture changes at the top and bottom - which is the focus of much inequality research.

In order to address those issues and provide information on the possible causes of changes in Gini coefficient measures observed over time ( table 6.1), additional analysis has been undertaken, looking at the changes in the share of wealth and its components across different population groups. The following analysis, based on the Palma methodology ^[21] , provides a greater understanding of where changes in ownership of wealth have occurred across different groups. The population of Scottish households has been divided into the 'least wealthy 40%' (deciles 1 to 4); 'middle 50%' (deciles 5 to 9); and the 'wealthiest 10%' (decile 10), based on total wealth ownership. The results are summarised in table 6.2.

Table 6.2 Changes in the share of household total net wealth and its components by bottom 40%, middle 50% and top 10% of households, Scotland 2006/08 - 2012/14

	2006/08	2008/10	2010/12	2012/14
Property wealth (net)
bottom 40%	0.9%	1.0%	1.1%	0.9%
middle 50%	52.2%	56.4%	57.1%	56.6%
top 10%	46.9%	42.6%	41.8%	42.5%
Financial wealth (net)
bottom 40%	1.2%	1.5%	1.0%	0.9%
middle 50%	34.7%	36.6%	30.5%	32.3%
top 10%	64.1%	61.9%	68.6%	66.8%
Physical wealth (gross)
bottom 40%	11.3%	11.7%	13.0%	11.7%
middle 50%	55.3%	53.2%	54.7%	54.3%
top 10%	33.4%	35.0%	32.3%	34.0%
Private pension wealth
bottom 40%	0.5%	0.5%	0.7%	0.6%
middle 50%	35.4%	38.3%	43.5%	45.2%
top 10%	64.1%	61.2%	55.8%	54.2%
Household total net wealth
bottom 40%	4.2%	4.5%	4.9%	4.6%
middle 50%	47.1%	49.4%	51.7%	52.2%
top 10%	48.7%	46.1%	43.4%	43.2%

Source: Wealth and Assets Survey, ONS

In 2012/14, the decrease in inequality in the ownership of net financial wealth measured by the Gini coefficient ( table 6.1) may be attributed to the increase in the share of financial wealth owned by the 'middle 50%' (an increase of 1.9 percentage points). While the middle 50% enjoyed a larger share of financial wealth compared with 2010/12, the situation of the bottom 40% of households worsened in 2012/14. The least wealthy 40% decreased their share of financial wealth by 0.1 percentage points, while the wealthiest 10% of households decreased their share of financial wealth by 1.8 percentage points.

Likewise, the decreased rate of inequality in the distribution of private pension wealth measured by the Gini coefficient ( table 6.1) is likely to be correlated to the increased ownership rate of this wealth (by 1.7 percentage point) by households placed in the middle 50% of distribution. In contrast, the bottom 40% and top 10% of households experienced a decrease in the share of private pension wealth by 0.1 and 1.6 percentage points respectively.

The increase in inequality of net property wealth reported by the Gini coefficient in 2012/14 ( table 6.1) reflects the decreased share in this wealth (by 0.5 percentage point) by households placed in the middle 50% of the distribution. At the same time, the more detailed analysis of changes shows that in 2012/14 the situation of households at the bottom 40% of the distribution also worsened, as they decreased their share of net property wealth by 0.2 percentage points compared with 2010/12 (a smaller decrease than seen by the middle 50% of households). In contrast, the wealthiest 10% of households increased their share of net property wealth by 0.7 percentage points in 2012/14.

The increase in inequality in the distribution of household gross physical wealth in 2012/14 compared to 2010/12 (table 6.1) reflects a decreased share (by 0.4 percentage points) in ownership of physical wealth by the middle 50% of households. However, table 6.2 shows that more significant changes were experienced by households placed at the bottom and top of the distribution. In 2012/14, the least wealthy 40% of households decreased their share of physical wealth by 1.3 percentage points, while the wealthiest 10% of households enjoyed an increased proportion of physical wealth (by 1.7 percentage points).

Interestingly, the rate of inequality reported by the Gini coefficient for household total net wealth ( table 6.1) remained at the same level for both 2010/12 and 2012/14 implying that the rate of inequality did not change over the last two survey periods. However, the analysis of changes in the share of wealth across different distributional groups ( table 6.2) shows that in 2012/14 the middle 50% of households increased their share of total net wealth by 0.5 percentage points while the bottom 40% and top 10% decreased their share by 0.3 and 0.2 percentage points respectively compared to 2010/12.

While the middle 50% of households owned a relatively stable and close to 50% share of household total net wealth over the four survey periods, it is worth considering how the observed changes at both ends of the distribution affected the situation of the least wealthy and the wealthiest households.

In 2012/14, the Palma ratio ^[22] ( table 6.3) for total net household wealth was 9.4, which means that the wealthiest 10% of households owned 9.4 times more household total net wealth than the least wealthy 40% combined. In contrast, in 2010/12, the Palma ratio was 8.8. Although the Gini coefficient did not report any changes to the level of inequality in distribution of total household wealth, the Palma ratio shows clearly that the situation of the bottom 40% of households worsened against the top 10% (with the middle 50% owning a relatively stable share of wealth over time).

Table 6.3 The Palma ratio, Scotland 2006/08 - 2012/14

	2006/08	2008/10	2010/12	2012/14
Share of the middle 50%	47.1%	49.4%	51.7%	52.2%
Palma ratio	11.6	10.2	8.8	9.4

Source: Wealth and Assets Survey, ONS

6.3 Wealth inequality in Scotland and Great Britain

Inequality in the ownership of total net household wealth in Scotland was slightly lower than that for Great Britain in 2012/14. Table 6.4 shows the Gini coefficient for Scotland was 0.61 compared with 0.63 for Great Britain. However, wealth inequality in Scotland and Great Britain remains high.

In 2012/14 Scotland was slightly more unequal than Great Britain for physical wealth, the same as Great Britain for private pension wealth and more equal than Great Britain for financial wealth and property wealth.

This differs from the pattern in 2010/12 when Scotland was slightly more unequal than Great Britain for financial wealth, physical wealth and private pension wealth and the same as Great Britain for property wealth and total wealth. However, as Table 6.4 shows changes are small and overall inequality remains high.

Table 6.4 Gini coefficient for Scotland and Great Britain, 2012/14

	Scotland	Great Britain
Property wealth (net)	0.65	0.66
Financial wealth (net)	0.89	0.91
Physical wealth (gross)	0.47	0.45
Private pension wealth	0.73	0.73
Household total net wealth	0.61	0.63

Source: Wealth and Assets Survey, ONS

An alternative way of understanding wealth inequality is the change in the share of wealth ownership. As in the previous section, the share of wealth owned by the bottom 40%, middle 50% and top 10% has also been considered, in order to identify where the actual concentration of wealth may exist. The results are presented in table 6.5.

• Total net household wealth is slightly more equally distributed in Scotland than in Great Britain in 2012/14. This reflects the higher share of wealth owned by the middle 50% of households in Scotland compared with Great Britain. The bottom 40% of Scottish households owned a slightly higher share of total net wealth than those in Great Britain.
• Net financial wealth was more equally distributed in Scotland than in Great Britain in 2012/14. This reflects the greater share of ownership of financial wealth by the middle 50% of Scottish households compared with great Britain. The largest influence on the levels of inequality was the lower share of financial wealth owned by the top 10% in Scotland compared with Great Britain. It is worth noting however that the bottom 40% of households in Scotland owned a smaller share of net financial wealth than those in Great Britain.
• Although inequality in the ownership of private pension wealth was the same in Scotland as in Great Britain in 2012/14, the middle 50% of households in Scotland owned a greater share of private pension wealth than the same group in Great Britain. Meanwhile, the bottom 40% and the top 10% of Scottish households owned a smaller share of private pension wealth than the same groups in Great Britain.
• The greater inequality in the ownership of physical wealth in Scotland reflects the smaller proportion of ownership by the middle 50% compared to the same group in Great Britain. In Scotland, the bottom 40% also owned less physical wealth than the same group in Great Britain; but the top 10% of Scottish households owned a greater share of physical wealth than the equivalent group in Great Britain.

Table 6.5 Share of household total net wealth and its components by bottom 40%, middle 50% and top 10% of households for Scotland and Great Britain, 2012/14

	Scotland	Great Britain
Property wealth (net)
bottom 40%	0.9%	1.2%
middle 50%	56.6%	53.0%
top 10%	42.5%	45.8%
Financial wealth (net)
bottom 40%	0.9%	1.2%
middle 50%	32.3%	29.7%
top 10%	66.8%	69.1%
Physical wealth (gross)
bottom 40%	11.7%	12.3%
middle 50%	54.3%	56.1%
top 10%	34.0%	31.6%
Private pension wealth
bottom 40%	0.6%	0.8%
middle 50%	45.2%	44.7%
top 10%	54.2%	54.6%
Household total net wealth
bottom 40%	4.6%	4.5%
middle 50%	52.2%	50.7%
top 10%	43.2%	44.8%

Source: Wealth and Assets Survey, ONS