Wealth and the breaking of Britain’s social contract

The distortions of wealth and the winners and losers in today’s Britain have fundamentally broken our social contract, Mouthy Money editor Edmund Greaves writes. 

I frequently walk my dog, a labrador called Atlas, in a local woodland set in tightly rolling Devonshire countryside. Living on the craggy coast of North Devon as we do, we’re not underserved for atmospheric places to take the dog to stretch his legs. 

But I like this particular bit of woodland, above others. If for nothing else, as I quipped to my wife recently, it’s the only place I can walk him where someone doesn’t charge me to park our car. 

Instead, the woodland has a particular unspoken social contract in place. It is privately owned by a large faceless estate, but it allows walkers to tread its pleasing, if muddy, tracks for free and at their leisure. In doing so the expectation of the good behaviour of these guests is implicit.

I have often seen what appear to be small (and occasionally amusing) contraventions of this contract. 

For instance, the older gentleman with his younger female companion I once interrupted deep in the woodland, with coy smiles on their faces and nervous looks over shoulders to see when I had moved on down the track. 

Or the woolly hat wearing, secateur-wielding mushroom thieves I once saw trimming fungi, woven baskets in hand. One hopes they knew their mycelia. 

As naughtily bucolic as much of this is, there was an angry recent intrusion into the balance of the wood’s social contract. I have only once come across anyone who appeared to be engaged in the management of the woodland, in the form of a couple of high vis wearing workmen spraying something on some bushes. 

But more recently, a sign has appeared on the entrance gates to the forest, exclaiming ‘ALL DOGS MUST BE ON LEADS’ or something to that effect.

Seeing this for the first time, I snorted in derision. Firstly, no one uses leads to walk their dogs here. Why would you? The reason I walk my dog in this bit of the world is it is one of the few spaces where I feel happy that he won’t get into trouble, be it from a car, an XL bully or a marauding dachshund (often worse than the bullies, in my opinion). 

But there was a deeper reason for my scorn: the woodland’s owners had already broken the social contract, so why should we pay attention to their rules? Let me explain. 

Last winter saw heavy storms across the UK. When such storms hit, we avoid the woods for good reason. After the worst of it, on revisiting I counted some 10-15 trees that had come down in the high winds. In around five places they had come down across the paths. There they have sat ever since. The estate managers have done nothing, for now nearly a year. 

The entropic response from walkers has been to cut around into the bushes to the sides of the paths or simply climb over the logs. This damages the forest floor around the tracks, creates muddy bogs and generally worsens the environment and experience of visitors, all while storing up future problems for the estate managers.

However, some intrepid dog walker has gone a step further and ripped the ‘dogs on leads’ sign off its screws in apparent protest. It is a worrying portend that our woodland social contract is in the process of breaking down further. 

My only hope is the owner does not eventually withdraw access completely or the wood become subject to more violent vandalism.  

Britain’s broken social contract

Why am I telling this story? It encapsulates what is broken at the heart of our society and economy and the slow-motion unravelling of Britain’s social contract. 

We, the public, allow the state to monopolise significant areas of our lives. But it comes with a trade-off. That trade-off varies in many countries, but at its most essential, it involves providing for our physical security, justice, freedom of association, healthcare, infrastructure and a financial safety net – in exchange for our cooperation and tax payments. That is our social contract.

When the overarching institution – that tends to a space we all inhabit – visibly fails in its duty, the natural reaction is one of disobedience. It creates a vicious feedback loop of restriction, failure and further disobedience. 

It can be stated simpler than that still: we pay our taxes and get services and rights we need in return. On almost every measure, this contract now lies broken, or in the process of breaking down. 

Parliamentary committees warn we are effectively unable to defend ourselves. Enemies openly skirt our waters with impunity while countries, to whom we give unfettered economic access to our consumer markets, flood our institutions with agents and crush our industries.

Judges tell us the justice system is about to collapse. Petty crime goes unpunished. Prisoners are routinely released by mistake. Our money is casually stolen across borders.

Our infrastructure crumbles around us while the new projects are left in shockingly expensive limbo. And the headline costs of delays don’t even account for the damage done to the economy in the meantime. Our healthcare system is headed down the same path.

But the structural malaise goes far deeper than these big, but specific, issues alone and strikes at the very heart of what we expect, beyond the state, for how our society should function. To get out as much as we put in. And it has to do with the wealth of the nation. 

Britain’s broken wealth

Over the next 30 years, a reported £5.5 trillion in assets is set to be transferred between generations. This is more than all of the central bank gold reserves in the world, combined. The property market alone is worth more than £9 trillion. These are not trifling numbers.

This, alongside pensions, forms the bedrock of wealth in Britain. Such a massive build up is the result of a 40-year boom in the value of those assets, driven by structural reforms such as privatisation, low interest rates, overly generous final salary arrangements and enormous tax incentives that have turbocharged the value of the assets in question. 

All of those perks have now curdled horrendously for subsequent generations while new homes are blocked by cynical NIMBYs looking to preserve their asset appreciation.

Those tax incentive haven’t just fuelled asset owners’ gains – they put a boot on the necks of anyone else unfortunate enough to be entering the social Ponzi now by encouraging the pulling up of the drawbridge on anyone else trying to benefit.

Take Council Tax. Council tax sees residents of multi-million-pound homes pay tax of around 0.27% of the value in London, while residents of Newcastle pay 0.79% of theirs. 

A resident of Wandsworth living in a Band D house pays £990.07 a year (on a property worth £691,000 on average), while their equivalent in Newcastle pays £2,463.98 a year (on a property worth just £205,000). The good, honest folk in the North East, for what it’s worth, have one of the lowest council tax arrears of any region.

It’s patently mad. The more you dig, the madder it becomes. Kilburn residents who own £3.4 million homes pay 0.03% council tax rates, for example. The Government is potentially looking at hiking certain bands but this doesn’t fix the issue. It perpetuates the problem harder as it will still hammer relatively poorer residents in the same bands in the wrong places, as described above. 

It’s shocking inequality, but no one in power seems to want to do anything meaningful other than tinker, while those who have benefited pay infinitesimally small tax rates on their unearned gains. 

Council tax doesn’t even do what it meant to anyway. While it notionally pays for our bin collections in reality it is a social care tax. And it is so functionally inadequate that councils are routinely going broke anyway. Regional demographic variations are breaking the system. 

I could write reams on all the other distortions in the tax system that are so evidently toxic to our economy, but this would be simply labouring the point. 

The fact is an entire generation has grown rich on the backs of economic forces totally outside their control beyond the ballot box, with tax benefits in all the right places to supersize it. This unearned wealth is structurally inefficient, illiquid, exclusionary by design and warranted by the tax system.

Being sold a lie

The easy ‘answer’ of a wealth tax is a wholly uncritical and ill-thought through response to what is an extraordinary structural failing of how wealth in Britain is accumulated and the sheer difficulty of trying to build it in a meaningful way from scratch today. The barriers to entry are extraordinary.

Redistribution will only take us so far. Those at the top that wealth taxes intend to target will be on the first choppers out of Saigon, not the last. And frankly, even their proponents own calculations suggest a relatively trifling amount of money being brought in (not accounting for any economic damage either).

The irony is that there are simple solutions to problems like council tax and stamp duty land tax, but it requires focus and careful consideration, something the state lacks completely. For example, a land value tax is the only form of unavoidable wealth tax. Because you can’t leave the country with your land. But such reforms are discarded as politically unviable and unworkable, without much (if any) further thought. 

Instead we’re offered a mindlessly technocratic ‘smorgasbord’ of taxes that will be unpicked by special interest groups and avoided by those with good tax planners. The only pathetic ideas offered to support younger generations to grow their wealth are hopelessly conflicted and evidently ineffectual.

Aside from the fact we already have several varieties of wealth tax (dividend taxes, capital gains tax, inheritance tax and corporation tax to name a few), all the aforementioned wealth must eventually go somewhere. If the status quo persists, as Eliza Filby brilliantly illustrates in her book Inheritocracy, it’s just probably going to be inherited by the children of those who happened to buy in the right bit of the country 40 years ago. 

For all the complaint over inheritance taxes the truth is if you are lucky enough to have parents who bought well and didn’t get divorced, then you could inherit a property worth up to £1 million tax free. Not a penny paid to the exchequer. No wonder they’re refusing to downsize. 

Meanwhile the rest, many of whom won’t have the unearned luck of inheritance, look on in envy. Those same young were told that they could join the wealthy by getting degrees to earn high incomes. 

But saddled with enormous debts and facing decades of wage garnishing, it rings hollow. Basic supply and demand dictates that when you flood a market with a product, that product becomes a lot cheaper. This isn’t hard to understand. 

Our social fabric is further crippled by the idea that we should rip up all our young people by their roots, transplant them in other parts of the country and then watch them flail when they try to start families without their parents within an hour’s drive. 

We replace that social fabric with complicated and distortionary child benefits (which in themselves are handed out in absurd ways). No wonder the birth rate is collapsing.

As of the end of March 2025, the outstanding student loan debt has reached £267 billion. By the late 2040s this is forecast to reach around £500 billion. These loans all sit as assets on the Government’s balance sheet – but what happens when those loans all start to expire, unpaid by a generation that has given up? It’s anyone’s guess at this point (but a massive fiscal crisis just as millennials start retiring sounds about right).

On the other side of the coin is the state pension. The misunderstanding of the state pension by those who think they are owed it is breathtaking. Far from a pot of money at the end of a rainbow, the state pension is a straightforward intergenerational income transfer from workers to retirees. It’s reverse Robinhoodism.

The triple lock policy, which currently appears untouchable, will mathematically eventually completely overwhelm the British state’s balance sheets. That is by design, owing to its statutory obligation to effectively always match or beat inflation. Naturally, this system will collapse before anyone under the age of 50 has time to benefit, leaving those paying today to pick up tomorrow’s pieces.

 But far from trying to deal with it, the state seems unwilling or unable to even discuss reforming it. It can’t even tackle minor perks such as the winter fuel allowance let alone a policy that is going to break us.  

The absurdity of entitlement runs so deep, there is currently a petition on the Parliament website demanding the doubling of the income tax personal allowance for pensioners to ensure their state pension payments are tax free. At the time of writing it has 22,881 signatures. 

These people aren’t just demanding a tax break, they’re arguing for the taking from the poor and giving to the rich. 

Governance by imbeciles

It would be easy to accuse the Government of cynically pandering to factions of voters who hold the balance of power through the ballot box. 

This is undoubtedly true, but it is as much a failure of younger voters to coalesce around a political project with any interest in going after these problems. They aren’t doing that, yet. They’re coalescing around parties that want to make things worse. To perpetuate the broken system even harder. 

And so, like the embattled Caesars of Rome, the state throws bread to the masses while it quietly lines the pockets of its very own praetorian guard of gerontocratic voters with everyone else’s earnings. 

What is almost more infuriating however, is that there is evidence this isn’t even being done in a deliberate, conspiratorial manner. 

No, it would appear we have a Government by imbeciles, who complain about the bond market but don’t even understand how a gilt works. And this isn’t one party alone at fault, either. 

Our leaders, who remind us regularly that their position matters to such éminence grises as ‘the bond market’, can’t even get their story straight on what they intend to do. All the while things continue to get worse and worse. 

Reforms are routinely introduced that don’t tackle the heart of the issue. We legislate around it and make the situation worse. Instead of building more houses and making home ownership easier, we lump a milieu of new legal requirements on the market which will patently just reduce supply further, for instance. 

Policy ideas pop up out of nowhere that seem to deliberately contradict other policies of their own making. Other ideas emerge that are so ineffectual as to be pointless, not even making any political sense other than a sort of vague and hopeful earnestness about something that is at the margins of our real problems. 

All that happens meanwhile

Like the woodland walkers, many will try to cut around the problems, creating more mess and difficulty in their wakes. There is evidence to the effect that people are already voting with their feet, picking soulless, intellectually barren, dictatorships over storied but troubled democracies.

But others – like the dog walker who took it upon themselves to remove an insulting sign – are starting to take a more aggressive, localised approach.

This ranges from letters to national newspapers openly calling for bill strikes to people who stop paying their taxes entirely (seriously, look at the comments in the video).

Meanwhile, wage compression leads millions to give up chasing any kind of dream. Why work long hours on a career that gets you nowhere when you can pull pints and not have to think about emails from HR? Even worse, young people are starting to opt out entirely, and are being given a helping hand by an apparently nihilistic state.

We have given up the pretence of even trying to honour the social contract, to give people something in return for their labour. Instead, we extract more from them and paper over the cracks and hope no one will notice. It’s not going to last. 

The idea is often floated that we risk condemning a generation of young people to failures of our own making if we don’t fix our problems. But this has already happened. It has been happening since the financial crisis. We are already there. And it’s getting worse not better. 

I was once told by an economist that the one thing the state truly fears is high unemployment. Governments of all stripes tend to be obsessed over ensuring jobs are plentiful, no matter if they are low quality. If people have to clock on then they don’t take to the streets. Why else do protests tend to happen on a Saturday? It’s protesting as a weekend excursion and thoroughly unserious. 

Unemployment is the one dog in this fight that hasn’t yet barked and didn’t bark seriously after the financial crisis. But the twin effects of AI and an irresponsibly timed employment rights bill could be catastrophic. Unemployment could very well be the straw that breaks the camel’s back. 

The state fears mass unemployment for one very important reason. Young people are disproportionately affected. And those young people have the energy and the anger to do things like start a revolution. After all, if you don’t feel the ballot box is doing what you want of it, the next logical step is rather more frightening. 

As of today, we are not there. But I fear we are now barrelling hopelessly toward it. Unemployment is now rising. Time is well and truly running out.