Growing size of inheritances ‘curbing social mobility for younger generations’

Findings show ‘need to kickstart income growth for younger generations’, report’s author says

A think-tank has said inheritances are set to become increasingly important in the future (Getty Images)

Inheritances are set to grow dramatically compared with other sources of income, impacting social mobility within younger generations in the future, according to an economic think-tank.

The Institute for Fiscal Studies (IFS) said this will mean inheritances will become more and more important and will widen the gap between the rich and the poor.

The report’s author predicted a “growing importance of inherited wealth” which will have “worrying consequences for social mobility”.

The IFS found inheritances have been rising as a share of the UK’s national income since the 1970s and - looking into the future - projected a stark increase compared to other forms of income.

Existing disparities between older and younger generations are expected by the IFS to translate into reduced social mobility within younger generations in the future.

The smaller inheritances received by those with poorer parents will mean they have more ground to make up - making it increasingly hard for those with poor parents to move into higher income distribution brackets.

“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,” David Sturrock from the IFS said.

"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 senior researcher at the think-tank and report’s author added: “The growing importance of inherited wealth will be a profound societal shift, and one with worrying consequences for social mobility.”

For people born in the 1980s, average inheritances compared to lifetime income are projected to be nearly twice as large as for the generation born in the 1960s, according to the IFS.

The economic think-tank projected inheritances will be worth the equivalent of nine per cent of household lifetime non-inheritance income for those born in the 1960s, rising to 16 pr cent for people inheriting wealth who were born in the 1980s,

For people born in the 1960s whose parents were in the top fifth in terms of the distribution of wealth, inheritances were projected to increase their lifetime incomes by 17 per cent, compared to two per cent for those whose parents were in the bottom fifth.

The disparity was even more pronounced for people born in the 1980s, with children whose parents in the top fifth wealth bracket predicted to see inheritances add 29 per cent to their lifetime incomes and those with parents in the bottom fifth expected to have theirs add five per cent on.

Mr Sturrock from the IFS said the think-tank’s findings showed the “need to kickstart income growth for younger generations”, which would help “improve living standards” and “limit the importance of parental wealth”.

He said this, in turn, would “drive social mobility”.

The research comes against the backdrop of the coronavirus pandemic and fears over its impact on social inequality.

Towards the end of last year, the head of a government advisory body told The Independent social mobility will become “much harder” as the pandemic exacerbates existing issues and risks undoing progress

Steve Cooper, the Social Mobility Commission’s interim chair, said the pandemic was “having a particular impact on those communities that have lower social mobility.” 

A recent poll for the commission found most people believe social inequality has increased due to the Covid-19 pandemic.

The Social Mobility Commission warned there was growing evidence to suggest people from the most disadvantaged backgrounds were being hardest hit by the pandemic.

This includes those from poor backgrounds facing job losses and disadvantaged children falling behind at school - which was online for most pupils in the first two months of the year.

Additional reporting by Press Association