The best way to become wealthy is to be wealthy already

Younger generations are likely to find that inheritances are larger as a share of lifetime incomes than previous generations (so that working hard and getting paid well are less likely to make up for not getting an inheritance). And inheritances will be much larger for people with higher incomes than for those with lower incomes (even if, as a percentage of lifetime incomes, they will be similar for people on low and high incomes). Inheritances will increase inequality between people with richer and poorer parents, which will reduce social mobility. Although many people only receive an inheritance later in life, the expectation of receiving it can affect life outcomes much earlier (for example because people might choose to save less). Policies to redistribute inheritances would have huge impacts on inequality and social mobility for future generations.

People with wealthy parents are normally wealthier themselves; children of the wealthiest 20% of parents are eight times likelier to be in the top 20% than the children of the poorest 20%. About half of the intergenerational persistence of wealth is due to the persistence of education and earnings, so ‘human capital’ is important as well as direct transfers of wealth. Children of wealthier parents are also much more likely to be homeowners by the age of 30.

Wealth inequality over the last 40 years has been relatively stable. However, the amount of wealth held in relation to national income has increased hugely (from three times national income in the 1980s to almost eight times today). Increasing asset prices have disproportionately benefited wealthier families. As a result, an average family in the richest 10% in 2006 had around £0.9m more per adult than a family in the middle of the wealth distribution, but by early 2020 that gap was more than £1.2m per adult.

Every time there is a crisis (COVID, energy prices), more money is created to deal with it, and most of this ends up in the pockets of the already-wealthy, either because they are spending less (COVID) or because they are being taxed less (2022 mini-budget). Because everyone is competing for a limited pool of resources and assets in a low-growth economy, this increases prices - of housing and of day-to-day essentials - and makes everyone else poorer in real terms. This is the very reverse of trickle-down economics; instead, the money is trickling up. The scale of the current economic crisis, and the degree of economic inequality, is now having a real impact on the living standards of the middle classes as well as the poorest in society. The only way to stop this inexorable hollowing out of the middle classes and of the nation’s finances is to tax the wealthy much more effectively.