Young people’s wealth depends more on their parents than ever before, according to a new report published today.
The Institute of Fiscal Studies (IFS) today claimed that those earning high salaries are more likely to receive a sizable inheritance than those on lower wages.
Together with a drop in home ownership and stagnation in wages, it means most wealth accumulated by young people actually comes from inheritance, not their own hard work.
The study comes just two months after the Chair of the Social Mobility Commission warned “the rungs on the social mobility ladder are growing further apart”.
Andrew Hood, an author of the briefing note and a Senior Research Economist at IFS, said: “The wealth of younger generations looks set to depend more on who their parents are than was the case for older generations.
“Today’s elderly have much more wealth to leave to their children than their predecessors did, primarily as the result of higher homeownership rates and rising house prices.
“At the same time, today’s young adults will find it harder to accumulate wealth of their own than previous generations did, due to the sharp fall in homeownership for that group, the dramatic decline of defined benefit pensions in the private sector and the stagnation in their incomes.”
The research claims that youngsters across all backgrounds are more likely to receive an inheritance than their parents or grandparents did.
“Of those born in the 1970s, 75% either have received or expect to receive an inheritance, compared with 68% of those born in the 1960s, 61% of those born in the 1950s, 55% of those born in the 1940s and less than 40% of those born in the 1930s.” - IFS
However, with 50 per cent of the elderly households holding 90 per cent of the wealth, a ‘lucky half’ of the younger generation will benefit from sizeable inheritances.
“Those with the highest lifetime incomes are much more likely to have received an extremely large inheritance. Nearly 10% of those in the top lifetime income quintile have inherited more than £250,000, compared with around 1% of those in the bottom three quintiles. In other words, more than half of those who have inherited more than £250,000 are also in the top lifetime income quintile.” - IFS
The inheritance tax rate is currently zero for all estates worth less than £325,000. However, by 2020 it could be possible to leave an estate worth £1million to children or grandchildren and not pay any inheritance tax.
The IFS’ findings led Labour’s Shadow Chancellor John McDonnell to call on the Government to scrap the planned changes to inheritance tax.
He said: “This report’s warning that wealth inequality is set to rise is deeply worrying. It further highlights why this is the wrong time for the Tories to go ahead with £2.3billion worth of inheritance tax giveaways that would at most benefit 63,000 estates.
“The Chancellor should not be pushing ahead with policies that could contribute to an increase in wealth inequality and further reward those already well off in our country, especially at a time when many of our public services such as the NHS are being hit with cuts that have led to rising waiting times and bed shortages.”
Justin Madders, the Labour MP who chairs the All Party Parliamentary Group on Social Mobility, said the IFS report showed people’s life chances were “getting worse”.
He said: “Far too often in this country, where a person is born and who they are born to is the determining factor in what their life chances will be. Today’s report confirms that this problem is getting worse.
“We risk leaving millions of young people in this country behind due to stagnating incomes and the uphill battle to get onto the property ladder. Saying to an entire generation they will have little opportunity to better themselves could lead to a catastrophic collapse in support for the current system.
“Among advanced nations, the UK stands alongside the United States in having the lowest social mobility. We wouldn’t accept such appalling life chances for a group in society if they were categorised by gender or ethnic origin and we shouldn’t accept this either.”