What caught my eye this week.
There’s a growing sense – I’d argue a reality – of intergenerational inequity in the UK, as with many other developed countries.
Whether the old having so much more than the young is an inevitable consequence of late capitalism, a comorbidity of a broken housing market, the demographic bulge bracket baby boomers not paying their way, or just what happens when an economy is no longer booming like it did in the 1950s and 1960s is hard to tell.
Probably it’s a bit of everything. But in any case, assuming we don’t want to transition permanently into neo-feudalism, the next question is what’s to be done?
One option is to directly favour the young with government largesse. For various reasons, mostly political, we’ve triple-locked away that solution for now.
The other obvious redress, redistribution, is even more controversial. At least outside of the editorial meetings of Socialist Worker.
Redistribution – taxing those with more to give to those with less, obscured by so many smoke and mirrors – at least treats the thing directly. Handy if the age aspect is a red herring, and really we’re just looking at greater wealth inequality.
The big snag though is that redistribution tends to infuriate those whose stuff is being redistributed.
As the UK tax take of GDP soars, statistics showing the top 1% already pay 30% of all income tax imply they have a point – even if income tax is not everything.
The bank of grandmother and grandad
There’s one kind of redistribution that both the richest and the rest of us tend to support though.
And that’s inheritance passing wealth down the generations.
True, long-time readers know that this is where I’d personally position the nation’s best tax-collecting apparatus.
On both moral grounds and in light of my neo-feudalism fears, I’d far prefer to tax dead people who can’t feel the pain than young people working, saving, and still not having enough money for a house deposit or a proper pension.
But hey, I’m in a minority. Inheritance tax is widely considered to be the UK’s most unpopular tax. Most people hate it.
And yet it exists – and from the perspective of its critics, it gets in the way of the frictionless redistribution from the father to the son.
(And the mother and daughter of course, but as we’re in the realms of neo-feudalism here, let’s have all the trimmings!)
How soon is now?
By far the best and easiest way to avoid inheritance taxes tithing such wealth transfers is for the eventually-to-be-deceased to give their money away sooner.
Currently no tax is due on anything given away if you live for seven more years.
To me, this longevity lottery seems a bit ridiculous – if again entirely in keeping with the same medieval thinking that makes inheritance taxes so unpopular.
Why should a family be penalised because a beloved elder gets an unexpected cancer or meets the wrong end of a bus?
Nevertheless, encouraging the rich to pass down their wealth sooner does have one undeniably huge benefit, as Jonathan Guthrie outlines in a (paywalled) article in the Financial Times this week.
As things stand, Guthrie writes:
…the most striking feature is how little we decumulate. Most folk die with more than 60 per cent of their peak lifetime assets.
Adult offspring are therefore liable to inherit large sums when they themselves are approaching retirement, when the utility of the money may be lower.
Giving sooner improves the lives of heirs earlier, and in material ways. Perhaps the chance for a parent to take a few years off to care for young children, or for a family to buy a house with bedrooms for all the kids from the start. Compare such uses to the money simply sitting in a septuagenarian’s bank account, maybe with a bit of the interest funding one more Caribbean cruise that gilds the lily.
Earlier inheritance might even help with the housing market, if it reduces the tendency for older generations to rattle around in big houses full of rooms they don’t use while young families grin and bear an open-plan kitchen-diner-hallway-sofa-bedroom.
Well, solves it for the moneyed classes at least. But that’s neo-feudalism for you…
An age-old story
Guthrie suspects traditional inheritance practices have yet to adjust for extended longevity, writing:
When lives were shorter and child-rearing began earlier, legacies from dead parents materialised closer to the point of greatest utility for heirs.
This must be right. Even oligarchs in the Middle Ages were lucky to make it to 60.
Naturally we all want to live longer lives. But if it means ever more wealth piling up at the right-hand of the curve where it’s unlikely to ever be spent, then something – literally – has to give.
I’d suggest if we’re to avoid a ‘Gen Z Uprising’ in the history books alongside the First Baron’s War, the Peasant’s Revolt, the Boston Tea Party, and the Bolshevik Revolution then more efficiently keeping it in the family isn’t going to be enough in the long run.
But getting wealth redistributed sooner – to where it will do the most good for those who are fortunate enough to inherit – is at least a start.
Have a great weekend.
p.s. Thanks to everyone who entered our Christmas sweatshirt competition. I’ll contact the winners this weekend to make sure they’re not Russian chatbots or whatnot, and announce the ‘lucky’ recipients next Saturday!
