David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

Summary
of average earnings. As living standards rise, the poverty line rises too. In Britain, when we say more people
live in poverty, this is really the same thing as saying that inequality has increased.
In contrast, in looking at the poorest areas of the world, international agencies such as the World Bank often
use measures of absolute poverty, such as the number of people living on less than $1 a day. If this number
rises, the poorest are getting absolutely poorer. Given that the world as a whole is getting richer, an increase
in absolute poverty means an increase in relative poverty. The UK shows that the converse need not always
be true - relative poverty has increased in the UK but absolute poverty has declined.
We should also be interested in the social consequences arising from income inequality. Different income
groups were also becoming geographically more segregated. If the rich retreat into affluent areas where they
meet only other rich people, and travel only in their luxury cars rather than on public transport, their awareness
of the problems of the poor may diminish. The Rowntree report concluded that urban clustering of poverty
had increased, while wealthy households were becoming concentrated on the outskirts of major cities.
Table 11.8 UK distribution of marketable wealth, 1991-2003
1991
2003
Percentage of wealth owned by:
Most wea I thy 1 %
Most wealthy 25%
Most wealthy 50%
Total marketable wealth (£bn)
Note: To bie applies to adults aged 18 and over.
Source: ONS, Social Trends.
17
71
92
1 71 1
21
72
93
3783
Table 11. 7 refers not just to income from the supply oflabour services. One reason why the distribution of
personal income is so unequal is that the ownership of wealth, which provides income from profits and
rents, is even more unequal. Table 11.8 gives details for 1991-2003.
The most wealthy 1 per cent of the population owns 21 per cent of UK marketable wealth and the most
wealthy 25 per cent of the population own 72 per cent of UK marketable wealth. The stream of profit and
rent income to which such wealth gives rise plays a large part in determining the personal distribution of
pre-tax income.
Summary
• Physical capital comprises real assets yielding services to producing firms or consuming households.
The main categories of physical capital are plant and machinery, residential structures, other buildings,
consumer durables and inventories. Tangible wealth is physical capital plus land.
• Present values convert future receipts or payments into current values. Because lenders can earn - and
borrowers must pay - interest over time, a pound tomorrow is worth less than a pound today. How
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