What explains the UK’s racial wealth gap?

Compared with white British households, ethnic minorities are more likely to live in households with lower levels of total net wealth and income, with fewer people in work. Differences in educational attainment and earnings are important for explaining wealth disparities among minority groups.

In recent years, researchers and policy-makers in developed countries have become increasingly concerned about wealth disparities among households. The UK is no exception, particularly since recent analysis of the Wealth and Assets Surveyshows a rapid widening of wealth differences across successively younger cohorts (Cowell et al, 2017; Gregg and Kanabar, 2022).

Importantly, research also suggests that wealth is likely to be stratified by a number of factors including membership of an ethnic minority group (Office for National Statistics, ONS, 2020). For example, the average level of total household net wealth holdings in Pakistani and Bangladeshi households is £243,700 and £201,500 lower than that held by white British households (ONS, 2022).

Given the importance of wealth in determining living standards – and for acting as a cushion against economic shocks such as Covid-19 – having a good understanding of the factors that explain the racial wealth gap is important for the design of policies to improve wealth, social mobility and living standards more generally.

Factors explaining differences in ethnic minority wealth holdings

Research shows that differences in education, earnings, economic status, immigration history, cultural norms and region explain differences in household wealth holdings (Byrne et al, 2020). These same factors also affect portfolio composition, which is the likelihood of owning certain types of wealth, such as housing or pensions.

Education

Differences in educational attainment and earnings are also important for understanding wealth differences across ethnic minority groups. Research shows that first generation Indians who emigrated to the UK in the 1960s, typically from East Africa, tended to be relatively well educated and/or business owners before arriving.

In comparison, groups such as Pakistanis and Bangladeshis, who arrived in the 1960s and 1970s, and black Caribbeans and black Africans, who emigrated during the 1950s and 1970s, were less well educated (Dustmann et al, 2011).

A bulk of first generation migrants typically entered manual and public sector jobs in urban areas and often settled in the poorest central areas of large cities (Rex and Moore, 1969; Finney and Simpson, 2009).

While education levels differ across ethnic minority groups, evidence suggests that there is strong intergenerational persistence within certain groups. In other words, within the same ethnic group, there is a high degree of association between the educational attainment of parents and their offspring (Dustmann et al, 2012).

Education is strongly associated with earnings and the latter is important for access to homeownership. But while educational attainment has increased across generations for most ethnic minority groups, this has not translated into higher earnings to the same extent as for the white majority group. Therefore the strength of the assocation between education, earnings and wealth differs across minority and majority groups (Longhi et al, 2013).

Income and economic status

Although on average the ethnic pay gap has fallen over time to around 2% in 2019, there remain significant differences by ethnic minority group. For example, the median pay gap is between 13% and 16% lower among Pakistanis, white and black Africans, Bangladeshis and black Caribbeans compared with the white British group. In contrast, for Indians and Chinese, it is 16% and 23% higher, respectively (ONS, 2020).

Self-employment is more prevalent among some ethnic minorities compared with the white majority (ONS, 2021). Figures based on the Annual Population Survey show that in 2019, 23.2% of Pakistanis and Bangladeshis reported being self-employed, compared with 14.7% of Indians, 14.6% of Chinese, 11.2% of blacks and 14.9% of the white British group (ONS, 2021).

Economic status and earnings also influence pension wealth and, as highlighted above, this type of wealth – while illiquid (so inaccessible) for working-age households – constitutes an important part of total household net wealth, even though ethnic minorities hold lower levels compared with the white British group. The value of such wealth is heavily related to the performance of financial markets.

Housing

Homeownership opportunities – which are important for wealth accumulation and reducing wealth inequalities – are likely to be affected by membership of an ethnic minority group. Recent analysis using the Wealth and Assets Survey covering Great Britain shows that homeownership and housing wealth are also increasingly stratified by parental wealth, which is lower among particular ethnic minority groups (Gregg and Kanabar, 2022).

Further, given the concentration of ethnic minorities in low paying sectors and occupations (Longhi and Brynin, 2015), the likelihood of certain groups getting onto the housing ladder is lower, despite major programmes encouraging homeownership, such as Right to Buy during the 1980s. Education, earnings, employment and region all affect homeownership rates and hence property wealth, which, as shown above, varies significantly by ethnic minority group.

Table 1: Housing tenure by ethnic minority group and white British, 2016-18

	Homeowner (%)	Private renter (%)	Social housing (%)
All	63	20	17
Bangladeshi	46	21	33
Chinese	45	45	10
Indian	74	19	7
Pakistani	58	29	13
Black African	20	36	44
Black Caribbean	40	20	40
White British	68	16	16

Source: Ministry of Housing, Communities and Local Government, 2020; 2021
Note: Figures based on English Housing Survey, 2017 and 2018

Table 1 shows clear differences in housing tenure by ethnic minority group. Among Indians, 74% report owning their home outright or with a mortgage, 11% higher than the average across all groups. The equivalent figure stands at only 20% and 40% among the black African and black Caribbean groups, respectively.

The opposite patterns holds when considering the proportion of each group that reports living in social housing: 7% among Indians compared with 44% and 40% for black African and black Caribbean groups, respectively. The figures for black groups are more than twice the average across all groups (17%).

Not only is housing tenure important, but so too is housing adequacy relative to household size. Evidence suggests that overcrowding rates are between six and eight times higher among certain ethnic minority groups compared with white British – 41% among Bangladeshis, 32% among Pakistanis and black versus 5% among white British (Finney and Harries, 2015).

Figure 1: Ethnicity by region (England and Wales only) in 2011

Source: Office for National Statistics, 2020
Note: Figures based on England and Wales 2011 census

Figure 1 shows that ethnic minority groups are geographically concentrated in certain regions. For example, black groups are more likely to live in London, and Asian groups are more likely to report living in London, the Midlands, and Yorkshire and the Humberside.

Historical differences in housing values in regions such as London – combined with the initial area of settlement among first generation immigrants and differences in housing tenure – are key factors in explaining the differences in property wealth reported by ethnic minority groups.

Social norms

Separately, it is important to recognise differences in social norms across ethnic groups in understanding wealth inequalities. The first of these relates to the participation of women in the labour market and household income and wealth.

For example, data from the Annual Population Survey show that in 2019, only 39% of Bangladeshi and Pakistani women aged between 16 and 64 reported being in employment. This compared with 67% of black women, 69% of Indian women and 74% of white British women.

Differences in employment rates directly influence the likelihood of homeownership, household earnings and savings, and hence wealth. A related point in this context is the prevalence of multigenerational households and the number of adults in employment.

It is relatively more common among certain ethnic groups to live in such types of households and for there to be fewer individuals in paid employment due to household composition as well as cultural norms (Perez-Hernandez et al, 2018).

The second issue around differences in social norms relates to intergenerational transfers, such as inheritances, which have been shown to be correlated with parental wealth and are important for explaining wealth inequalities in the UK (Palomino et al, 2021).

Despite the lack of research on this issue, given the wealth gap between the majority of ethnic minority groups (except Chinese) and the white majority, even if the likelihood of inheritances or lifetime transfers is equal across groups, holding all else constant – so factors that affect both offspring and parent wealth accumulation – the level differences mean that wealth inequalities are likely to pass down between generations.

Taken together, compared with white British households, ethnic minorities are more likely to live in households with lower levels of total net wealth and income, with fewer people in work. They were also less likely to report homeownership.

Finally, as has been highlighted, it is important to note the significant differences in household net wealth between and within ethnic minority groups.

Conclusion

Wealth plays an important role in influencing living standards throughout people’s lives. Disparities in wealth, which continue to grow over time, are especially influenced by factors such as parental wealth, education and ethnicity (ONS, 2020; Gregg and Kanabar, 2022).

These same factors also influence the composition of household wealth holdings and whether individuals own their home. Both pension and housing wealth typically account for the bulk of a household’s total net wealth (ONS, 2020).

While white British households hold relatively high levels of housing and pension wealth, for certain ethnic minority groups – such as Indians, Pakistanis and Chinese – housing represents almost half of total net household wealth (ONS, 2022).

On the other hand, for Bangladeshis, black Africans and black Caribbeans, housing only accounts for 13% and 26% of total net household wealth. This is precisely because these groups report much lower levels of homeownership and are concentrated in areas with lower house prices.

Returns to housing are non-trivial: UK house prices have risen by 65% on average in the decade to January 2022. This significant increase highlights a two-sided story in terms of wealth gains – that is, owning versus not owning your home (ONS, 2022).

Tackling wealth inequalities is complex given that individuals accumulate wealth over their lifetimes from a variety of sources, including their parents. Indeed, evidence shows that inequality of opportunity starts early in life (OECD, 2018).

Nonetheless, continued differences in educational achievement and the fact that homeownership is increasingly stratified by parental wealth (Gregg and Kanabar, 2022) – combined with historical differences in housing tenure by ethnic minority group – mean that policy has a crucial role to play. Indeed, the fact that we observe varying levels of wealth and social mobility across and within countries highlights that such outcomes are not inevitable.

International evidence highlights that policy-makers should focus resources on education, health and family policies, especially early in life to promote social mobility. In terms of dealing with wealth inequalities specifically, policies to limit tax avoidance with respect to wealth, inheritance and gifts have been suggested (OECD, 2018). More recently, there has also been a renewed focus in the UK on tackling regional inequalities.

It is vital to ensure that while policies to promote wealth and social mobility should benefit all individuals, they should especially help those from the least privileged backgrounds and these will inevitably include minority groups.