June 29, 2007 | posted by Michael Baxter in IABN |

Yesterday, we told how disposable income in the UK is falling. The UK may be getting richer, but, after deducting fixed income payments and other payments we have little or no control over such things as mortgage payments, council tax, petrol, and utility bills; we have less money left over than at any time in the last five years.

So what do we do when we have paid all those bills? One assumes that, these days, most of us like to buy the odd luxury item, every now and then. But, alas, it appears we are getting squeezed in that direction too. The snag is this, the super rich are pushing up prices of luxury goods. Take the property market; it seems the popularity of more expensive homes is probably pushing up the price of cheaper homes too.

But, it appears, if you are super rich, the problem is worse. According to Forbes’ Cost of Living Extremely Well Index, luxury goods are seeing double the inflation rate of normal goods.

By luxury, we are now talking seriously luxury; yachts, art, expensive jewellery, products that are well out of the reach of individuals worrying about their council tax.

But, we suspect, just as in the property market, this will move down, and affect other ‘cheaper luxury’ products.

It seems that the reason is this. The rich are getting richer faster than ever before. According to research from Merrill Lynch and consultancy firm Capgemini, there are now 9.5 million people across the globe with financial assets worth more than $1million (excluding first home). This represents an 8.3 percentage jump over 2005. It is thought that between now and 2011, the rich club will grow by an average of 6.8 per cent. On a world-wide basis Latin America, Eastern Europe and Asia-Pacific will see the biggest rise in the number of rich citizens.

In all, high net worth have financial assets - excluding their first home, worth $37.2 trillion.

That’s all very well, but maybe these days $1 million isn’t that much. What about the super rich?

And for this sector the Merrill Lynch/Capgemini research had some more startling news. The number of ultra high net worth individuals, that’s those with financial assets worth more than $30 million, now tallies in at 94,970. That’s 11.3 per cent up on 2005. This group possess combined wealth of $13.1 trillion.

What’s quite interesting about these statistics is the way they show wealth concentrated towards the upper end of the scale. There are roughly 100 times more people worth $1million or more, than people worth $30 million or more, yet this top 1 per cent of the rich club possess more than a third of the wealth.

But it’s this distribution of income and wealth that is proving such a controversial topic at the moment. Does it just boil down to envy? Or have we gone too far in favouring the rich?

Earlier this month, Nicholas Ferguson, head of private equity group SVG Capital, said how he thought it was unfair that private equity heads paid less tax than their cleaners.

But yesterday, the rich who are worried about the poor saw a most luminous gentleman join their ranks.

Warren Buffett, second richest man in the world - thought to be worth £26 billion, and planning to give most of his wealth to charity, doesn’t think it’s fair.

“If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent,” he said. He was talking to 400 or so supporters of Hilary Clinton and cried foul. “The 400 of us pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies for that matter.” He said this is wrong.

It is worth remembering, though, that we all have a stake in business being successful. If private equity can create greater profitability, and the price we have to pay is higher remuneration of his managers, then that is still okay, if, and only if, our pension funds benefit from this success.

But it does seem that the current trend towards ever more uneven distribution of income and wealth, will inevitably lead to ever more heated debate. Expect this debate to tumble on, and to become one of the hottest issues of Gordon Brown’s premiership.