Policy Brief: Inheritances and inequality within generations
4 May 2021
UCL Department of Economics PhD Student and Senior Research Economist at the Institute for Fiscal Studies (IFS) David Sturrock has reported on inheritances and inequality over the life cycle.
David Sturrock, with Pascale Bourquin and Robert Joyce have found that inheritances have been growing as a share of national income in the UK since the 1970s. The trend looks set to continue: older generations hold more wealth than their predecessors and younger generations have incomes no higher than the generations born just before them. As a result, inheritances will be an increasingly important part of lifetime income and wealth.
David Sturrock said “The increasing levels of wealth held by older generations and the lack of income growth for younger generations are together driving an inter-generational economic divide. But these trends also mean that inheritances are set to become more important in future, widening the gap between those with rich parents and those with poor parents. The growing importance of inherited wealth will be a profound societal shift, and one with worrying consequences for social mobility.
As inheritances become larger, any policies that redistribute inheritances will have bigger impacts on inequality and social mobility, and this should increase the pressure to rationalise our system of inheritance taxation. More broadly, our findings underline the need to kickstart income growth for younger generations, not just to improve living standards but also to limit the importance of parental wealth and therefore drive social mobility too.”