Ryan Shorthouse is the Founder of Bright Blue. Thomas Nurcombe is a researcher at the same think-tank.
Britain is in trouble. The luck of birth rather than effort at work is becoming more important in determining life outcomes. This country is becoming an inheritocracy rather than a meritocracy.
For those from the wealthiest fifth of households, inheritances are forecast to make up 17 per cent of lifetime income for those born in the 1960s, rising to 30 per cent of lifetime income for those born in the 1980s. Meanwhile, ordinary working families are facing rising prices and the highest tax burden in decades. Unlike those who are affluent, they cannot fall back on the safety net of inter vivos transfers and inheritances.
Those fortunate to receive financial support through gifts and inheritances are given proven advantages in education and employment. The American political scientist Robert Putnam argued that family wealth is a type of “informal insurance” which allows those with more affluent parents to take more risks for greater rewards. Indeed, it is estimated that almost 20 per cent of business start-ups relied on parental funding, 10 per cent on money from grandparents, and 14 per cent from a family trust.
There is nothing wrong with building wealth and passing it on to those you love. It is something to be saluted. But there is a problem when wealth inequality is at today’s level. It creates a circumstance where people from modest backgrounds are deprived of the opportunities to achieve meaningful social mobility and security. As the former President Teddy Roosevelt argued in 1910, “ruin in its worst form is inevitable if our national life brings us nothing better than swollen fortunes for the few.”
Personal wealth – which the Office for National Statistics identified as the stock of all financial and physical assets a person owns, including property and private pensions – is at rather substantial levels in this country. Indeed, household wealth has risen as a proportion of GDP from 300 per cent during the 1960s to almost 700 per cent today.
Wealth provides several benefits: a cushion to fall back on in hard times, the ability to take risky decisions and investments that yield long-term benefits, and much greater control over monthly incomes and outgoings.
A radical centre-right prospectus should want to see the total wealth in this country better shared across the population, so the benefits of wealth can flow to a wider group of people. In essence, a mission to open up the opportunities that wealth brings, rather than penalising those who have it.
The levels of wealth inequality in contemporary Britain mean there is a strong case for some redistribution of wealth. Traditionally, it has been the left that has made this argument, while the centre-right has shied away from bold thinking or reforms on wealth.
Considering the profound implications of wealth for equity and efficiency, there is an urgent need for new centre-right attention on – and policies to address – wealth inadequacy and inequality.
Indeed, there ought to be a unique and strong centre-right case for celebrating wealth – specifically, acquiring it and ensuring more people from modest incomes can access and benefit from it. Instead of wasting political capital and fiscal resources on cutting Inheritance Tax – which only helps people who already have lots of wealth – the focus should be on bold policies to help those with no or little wealth better obtain it and then leverage it.
A Wealth of Opportunities, Bright Blue’s latest report, offers a fresh and radical centre-right vision for wealth: supporting those from modest backgrounds by lowering the barriers to acquiring assets, empowering people to leverage their assets effectively, sharing wealth, and helping people to draw down their assets safely.
F. Scott Fitzgerald wrote: “Let me tell you about the very rich. They are different from you and me.” Indeed they are. Time for more ordinary people, working day in and day out to achieve a better life for themselves and their family, to finally have some of the privileges the rich have long enjoyed.
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Author: Ryan Shorthouse and Thomas Nurcombe
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