One of the great joys of reading Jane Austen novels is the skill with which she deals with the tension between young people wanting romantic love and a society in which an inheritance was necessary if you were going to comfortably enjoy life with your chosen partner. Her characters suffer from the indignities of being judged not on their personal worth but on how much they might be expected to inherit.
We, of course, live in a very different society to that, where individuals have the opportunity to prove their own worth in a competitive but fair country. Or do we?
Inheritance still predetermines our life chances
The Institute for Fiscal Studies has just published some truly alarming research about the direction in which our society has been moving. For over 40 years, successive governments have presided over a dangerous drift towards a society where one of the biggest factors in your life chances is how well off your parents are and how much you expect to inherit.
If you were born in the 1960s, research shows that around 8 percent of your lifetime income would be expected to come from an inheritance. If you were born in the 1980s that figure is twice as high.
What that means is that a lot of the most important things that happen in your life begin to be out of your control. Either you have expectations of inheritance or you don’t. All too often, young people starting out need family help to buy a house, need family help to get an education, and need family help to be able to afford to raise children. Those who aren’t fortunate enough to live in a family that has accumulated inherited wealth are at a huge disadvantage.
Buying a house is now beyond most people without parental help
Take housing, for instance. If you wish to buy a house in Britain then the cost has become prohibitively high for anyone seeking to fund the purchase out of the average income of a typical young employee. In the 1980s, a teacher’s salary was sufficient for someone who borrowed three times that salary to buy a home in London. I know this because that is what I did. Now it takes around ten times a teacher’s salary to buy the average home in Yorkshire.
Instead of being able to gain access to a home of your choice as a result of your own efforts, that opportunity is being denied to many because they lack access to a family store of inherited wealth. As a consequence, many are finding themselves renting for long periods of time from landlords who’ve inherited property from elderly relatives.
This changes the power equation in very important ways. A person who is renting from a private landlord has very little security of tenure and limited control over one of the most important aspects of their own lifestyle. The cost of renting that home is such that it becomes virtually impossible to imagine the moment when they will break out of this circumstance and buy their own home.
A person who has inherited sufficient money from a relative to have acquired a portfolio of property can afford to pay a high price for a second or a third property. They have sufficient assets to dominate the property market.
That is one of the reasons why there are parts of Yorkshire where homes are being built but housing need isn’t being met. Instead of the housing market being driven by the needs of those who want their own home, the market is driven by the needs of those who have the money to buy.
Large parts of the Dales are being emptied out of young families, as those with inheritance income dominate the market and drive up prices to levels that most of those born locally can never seriously aspire to afford.
Government policies have made this situation worse
The government has set up a series of astoundingly wrongheaded schemes to appear as though it’s tackling this and supporting young people who wish to buy their first home. None of the expensive help to buy schemes has achieved anything to improve the overall state of the housing market. Because they are working against the basic laws of economics.
All that happens when you subsidise some buyers without changing the power dynamics in the market, or increasing the supply, is that you use taxpayers’ money to drive up house prices and put even more wealth in the hands of those who already own property or of property developers.
If the government really wants to start fixing the housing market, it needs to start building council homes. And if it really wants to start giving young people a helpful start in life it needs to start changing the balance between income tax and inheritance tax.
Income tax and inheritance tax
At the moment in the UK it’s possible to inherit a million pounds without paying a single penny in tax. You start paying income tax if you earn more than £12,750 a year or £242 a week.
How can that balance between income tax and inheritance tax be right? We’re expecting someone on a zero-hours contract who works flat out to earn a pittance, to help society by contributing to government revenues. Meanwhile down the road someone could inherit a castle worth £999,000 and could pay not a penny in taxation.
When politicians get the balance that badly wrong, it has corrosive influences. What’s the point in working hard if the odds are stacked heavily against you? What does it feel like to be a talented person and to watch someone with less ability live comfortably because they come from a fortunate background?
It is bad enough to be living in a society with serious echoes of Jane Austin style restrictions on what you can achieve. Are we now to live in a pale imitation of an Agatha Christie novel, where the young have to squabble between themselves over who gains the inheritance instead of using their talents in the more constructive activity of achieving things via their own merits?