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Society, Politics & Law

The rich get richer across the globe

Updated Monday 26th November 2007

Professor Janette Rutterford blogs about the problems of being super rich.

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The Money Programme Superstar, Super-Rich shows how globalisation has made certain people mega-rich, with football and musical talents now reaching global and not local audiences. The distribution of wealth statistics show that 1% of the British population controls nearly 25% of the wealth. The fact that incomes in the tens of millions are no longer unusual has also had a major impact on the distribution of income – with the top 10% in the UK having nearly 7 times the disposable income of the bottom 10%, up from only 3 times in the mid 1970s. Burning a £20 note Copyrighted image Icon Copyright: Paul Lampard | Money to burn?

The lowering of the top rate of UK income tax from 98% to 40% in that time, with businessmen and women now able to turn income into capital gains paying a special low rate of 10%, has also widened the gap between after tax pay of high and low earners. Governments now compete to attract entrepreneurs to their shores. For many foreign-born super stars, London is a tax haven, with non-domicile status meaning that they don’t have to pay UK tax at all – apart from council tax.

But there are problems with being super-rich. You need the trappings to go with it – and they don’t come cheap. Forbes’ so-called CLEWI index (Cost of Living Extremely Well) keeps on going up by more than the standard rate of inflation. The index includes such essential items as designer handbags, opera season tickets, a Harvard education, as well as a Rolls Royce, Lear jet and a race horse. This dollar-based cost of luxury goods index went up 7% last year compared with 4% for the US Consumer Price Index. But this may be understating the problem for the super-rich in Britain: London rents have increased by 25% since 2002 and, since last year; Range Rovers cost 20% more; a season ticket at Chelsea 8% more; and a case of Château-Lafite 117% more!

The increasing disparity between the rich and the poor and between high earners and low earners is a global phenomenon. In the US, for example, 1% of the population control almost 40% of wealth and 20% of income. However, in emerging markets, High Net Worth Individuals (HNWIs) – defined as those with over $1 million in financial assets alone - are rapidly acquiring large shares of their national cakes. And their numbers are growing at a faster rate. In a single year – 2006 – the percentage increase in HNWI wealth in Africa was 14.0% and in Latin America 23.2% compared with a measly 7.8% for Europe.

This also has implications for the super-rich. An ever increasing number (currently 10 million HNWIs globally) are chasing the same status symbols. There is increasing similarity as to which types of property, cars, boats and planes, and which “investments of passion” – jewellery, art and football clubs – HNWIs want to buy. So it is likely that the CLEWI index will continue to rise by much more than the average rate of inflation!

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