Inheritance 'fuels widening inequality'
Well-off families benefit more from growing wealth of older generations, says Institute of Fiscal Studies
Inheritance will soon play a bigger role in determining the future wealth of a child than any other factor, according to a report from the Institute of Fiscal Studies (IFS).
Rising house prices over the past ten years have led to a 45 per cent increase in the wealth of older generations, meaning more money than ever before will be passed on when they die.
However, says the IFS, the richest half of elderly households hold 90 per cent of their generation's wealth, the vast majority of which will be inherited by a lucky 50 per cent of the following generation, to the detriment of the rest.
"Those likely to benefit the most are those who are already well off, or who already benefit from high incomes," says the BBC.
Andrew Hood, senior research economist at the IFS, said the rise comes as children become more dependent on the wealth of their parents.
Young people are finding it harder to accumulate wealth "due to the sharp fall in homeownership, the dramatic decline of defined benefit pensions in the private sector and the stagnation in their incomes", he said.
Parents helping out first-time buyers with gifts or loans are colloquially known as the "Bank of Mum and Dad", but The Independent says "this homely-sounding expression represents an engine of massive social division".
"It is time to face the cold realties of what is happening," adds the paper. "The rich are indeed getting richer, and probably at a more rapid rate than at any time since the Edwardian era, and a century of social progress is being unravelled."
Polly Toynbee in The Guardian says the UK already has one of highest levels of inequality in the west and that "inheritance is rapidly becoming a more, not less, important factor in people's lives".
She adds: "It was already the case: the wealthiest pensioners are those who themselves inherited most. But for the next generation that effect will grow."
Shadow chancellor John McDonnell said it was "deeply worrying" that inheritance is set to exacerbate wealth inequality, while the Lib Dem's economy spokeswoman, Susan Kramer, accused the Tories of "entrenching inequality" by giving more tax cuts to the rich.
But raising the amount people pay in inheritance tax may not necessarily be the best answer, according to Paul Johnson, the director of the IFS.
He said: "You may well find that a more effective set of policies are policies that support younger people, and particularly in the housing market; policies, for example, that increase council tax and reduce stamp duty, or increase the amount of houses that are built."