From the TUC

Inherited wealth and inequality

20 Jul 2011, by in Society & Welfare

Inherited wealth makes the UK an even more unequal country than some of us had realised. Most of the time, egalitarians like me tend to concentrate our worrying on unequal incomes, but every so often something new reminds us about other forms of inequality.

One of these prompts is Recent trends in the size and the distribution of inherited wealth in the UK, a new study by Eleni Karagiannaki from the Centre for the Analysis of Social Exclusion at the London School of Economics, which shows that on a common measure of inequality, inherited wealth is two or three times as unequal as incomes.

This study of inherited wealth from 1984 to 2005 found that rising house prices pushed up the value of inheritances from being worth 3% of GDP in 1984 to about 4.3% in 2005 and there is a “high degree of inequality” in the distribution of inheritances.

A common measure of inequality is the Gini coefficient – a society with perfect equality would have a Gini coefficient of 0.00, one where one person had all the wealth would score 1.00. Depending on the survey used for the data and the measure of inheritance, the study found that the Gini coefficient for inherited wealth ranged from 0.90 to 0.97.

That is the figure when we include all respondents, if the results are limited to people who had had some inheritance, the range is 0.62 to 0.75.

For comparison, the Gini coefficient for income inequality in 2009/10 was 0.36 for income before housing costs and 0.40 after housing costs. And those of us who compare about inequality worry a great deal about these figures.

The study concludes with an interesting policy discussion. Inheritance Tax is not charged on estates below £325,000 and married couples and civil partners can effectively double this up to £650,000. Given the inequality of inherited wealth, this means that Inheritance Tax is only paid by “a minority of very wealthy estates” and:

“Any increase in the Inheritance Tax threshold would represent a reallocation of wealth to the very wealthy.”

2 Responses to Inherited wealth and inequality

  1. David Lewis
    Jul 21st 2011, 5:45 pm

    What is your problem with inequality and inherited wealth? IHT should be abolished anyway. I can’t understand you lefties’ obsession with equality, which dragged the country down during the ’70s – and God help us, you’re still on about it!

  2. Matt Sharp
    Jul 22nd 2011, 7:35 am

    Ideally inheritance tax would be much higher (or have a lower threshold). Inheritance is unearned, and thus should be redistributed for the benefit of the worst off. However, this should be coupled with a decrease in income tax, thus incentivising and rewarding work. People should keep more of what they earn, but less of what they are born into.