UK rise in inherited wealth likely to widen inequality gap

Homeowners who gained from a decades-long property boom in Britain are starting to pass on their property to their children while young people face a housing crisis.

Inheriting a home is becoming more common in Britain but for those offspring of non-homeowners on lower incomes the gap between well-off and poor is growing. Jack Taylor/ Getty

A glut of inherited wealth from a decades-long house-price boom is set to worsen inequality in the United Kingdom, according to the Institute for Fiscal Studies.

Young people today are more likely to receive an inheritance than earlier generations, and those that receive the biggest ones are already the most well off, the study showed. Among people born in the 1970s, about 90 per cent of the highest earners will receive wealth from deceased relatives, compared with about a half of workers with the lowest incomes.

“The wealth of younger generations looks set to depend more on who their parents are than was the case for older generations,” said Andrew Hood, a senior research economist at the IFS. “Today’s elderly have much more wealth to leave to their children than their predecessors did, primarily as the result of higher home-ownership rates and rising house prices. At the same time, today’s young adults will find it harder to accumulate wealth of their own.”

Inequality has been pushed to the fore of economic and political discourse in the UK amid speculation that disparity played a role in Britons’ vote to leave the European Union and is being deepened by Bank of England (BoE) stimulus. The prime minister Theresa May’s criticism in October that ultra-loose monetary policy had “bad side effects” prompted a fightback by BoE officials who say it is due to more fundamental factors.

While inheritances are becoming more common across the income spectrum, they are also becoming less equal. The richest half of elderly households in the UK hold 90 per cent of the country’s wealth after property prices rose sevenfold since the early 1980s.

“It cannot be right that the wealthiest families amass vast fortunes while millions of young people see their incomes fall and home ownership slip out of reach,” said Susan Kramer from the UK’s Liberal Democrat party. “Action is needed now to tackle rising inequality, or the gap between those with and without family wealth will grow even wider.”

* Bloomberg

Follow The National's Business section on Twitter