Rent seeking – Growing inequality

Rent seeking – Growing inequality

As explained by Joseph Stiglitz “The term ‘rent’ was originally used to describe the returns to land, since the owner of the land receives these payments by virtue of his or his ownership and not because of anything he or she does. The term was then extended to include monopoly profits (or monopoly rents)— the income that one receives simply from control of a monopoly— and in general returns due to similar ownership claims. Thus, rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway. Indeed, rent-seekers typically destroy wealth, as a by-product of their taking away from others. A monopolist who overcharges for her or his product takes money from those whom she or he is overcharging and at the same time destroys value. To get her or his monopoly price, she or he has to restrict production.”

Inequality via unearned income – Joseph Stiglitz

Britain’s generous trust law ensures that the country’s largest fortunes are largely kept intact. This is borne out by statistics which show that duties are a modest source of revenue for the Treasury. HMRC collected total tax of £534bn in 2015-16, of which inheritance tax receipts represented £4.7bn.

This ensures a very small number of high-net worth individuals to own vast land and property portfolios that generate income through rent instead of being put into productive use themselves.

Duke of Westminster will not pay billions in inheritance tax


Property income is a significant source of earnings to those who enjoy investment income: it is now estimated that 18% of all UK property is owned by the countries 1.75 million buy-to landlords. That is 4.9 million properties in total.   If each buy to let property is worth roughly half an average house each buy to let property, after the offset of mortgages due, would be worth about £71,000.   The average rate of declared return on these properties is 4.1% on this basis – an equivalent to over £8,000 per year of unearned income for landlords.

Taxes on income is a disincentive to work.  Taxing wealth generated by ‘unearned’ income more than earned income may be a fairer solution.


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