The morality of inherited wealth

My arguments from a recent episode of 'Moral Maze' on BBC Radio 4

Last week I was one of four witnesses on an episode of ‘Moral Maze’, BBC Radio 4’s regular foray into topical moral issues. The episode asked “what should we do about inherited inequality?”, and you can listen to it here (or, to listen to my section alone if you only have ten minutes, click on the play button below).

The episode as a whole covered a lot of ground, but my section was really all about the morality of inherited wealth, in line with the blurb (summary: families are nature’s ways of passing inequality down the generations; this isn’t fair, but should we care - and if so, what should we do about it?).

Here’s a summary of my argument as made on the programme, and below that are some of the broader arguments that I would have made if I’d had more time (or had been asked about them).

My argument on the programme:

• The only way to provide people with genuinely equal opportunities is to reduce inequality of outcome to a level where the barriers to opportunity can be overcome; above a certain level of inequality (which we have already passed in today’s Britain), you can't compensate for those barriers very effectively

• We significantly undertax wealth compared to income in the UK, and we need to address this¹

• Whether or not we introduce a wealth tax (to tax stocks of wealth), we need to do a better job of taxing transfers of wealth (e.g. by reforming inheritance tax, perhaps replacing it with a lifetime gifts tax so the recipient is taxed rather than the estate, and people pay the same rate of tax on income whether it comes from work, capital gains, inheritance or any other source)

• The ‘double taxation’ argument against inheritance tax doesn’t stack up because we pay tax twice all over the place (e.g. we pay VAT on purchases from spending money that is already net of income tax)

• Inheritance tax helps ensure that wealthy families don’t ‘hoard’ opportunities as much as they otherwise might, and funds public services that provide children of less wealthy families with at least some opportunities to maximise their potential

• The absence of wealth at the bottom of society is a huge problem, but simply eradicating absolute poverty is not enough; we need to recognise that the concentration of wealth at the top of society is also problematic, both morally and because it is bad for our society and economy

• We think that we live in a meritocracy, but we don’t, because a lot of wealth is unearned, and this way of thinking encourages people who have ‘succeeded’ in life to attribute their success to merit and to underplay the role of luck; even people who haven’t ‘succeeded’ (however you measure that) often believe that this is due to personal failings rather than to the structural barriers in their way

• The presence or absence of assets (wealth) has a huge impact on families’ abilities to maximise their children’s life chances, and we need to do much more than we do at the moment to redress this

There’s much more on the impacts of wealth inequality - and what to do about it - in our recent Wealth Gap Risk Register. But here are some more of the arguments that I prepped for the radio show and didn’t get a chance to mention, to flesh out some of the points in more detail:

• What people own (or inherit) is becoming a much bigger driver of their life chances and standard of living than what they earn, especially as many people cannot afford to buy a house

• Inheritance helps older generations that have benefited from asset price increases to share their wealth with their children and grand children, but inheritance is increasingly important in influencing people’s life chances at the same time as it is becoming increasingly unequal in terms of how much people inherit, which will increase wealth inequality while also damaging social cohesion and undermining faith in democracy even more than we are seeing today

• Families have moral agency, but strong families need to be part of strong communities and a healthy society; from both a moral and practical perspective, it makes little sense for parents to pass on all of their wealth to their children if those children then grow up in an insecure, unequal, dangerous world in which their own life chances are harmed as a result (leaving aside the usual arguments about wealthy parents spoiling their children by passing on all of their wealth and removing the need for their children to earn their own way in the world)

• We need to distinguish between excessive and ordinary wealth; we all need assets to allow us to thrive, but it is hard to morally justify people having extreme levels of wealth; moral arguments about family wealth don’t apply to billionaires

• We need to think about the moral agency of disadvantaged families as well as wealthy families; how can families without access to decent or secure housing, enough income to provide food and furniture, and the time (on top of working all hours) to parent well, be expected to exercise their responsibility to provide a supportive and nourishing environment that will allow their children to maximise their potential?

• Even in a less unequal country than today’s Britain, inherited wealth is morally problematic (for example, major religions talk about people’s obligations to wider society, and inherited wealth is a barrier to the idea of a meritocracy in which people’s life chances owe more to their talent and hard work than to an accident of birth), but in very unequal countries (like today’s Britain), these moral objections are even stronger (for example, because hoarding wealth undermines the ability of others to meet their basic needs and to enjoy fair opportunities, which is not only bad for those without wealth but also harms everyone by weakening our economy and damaging our society and democracy)

• We need to think about inheritance in terms of a partnership with future generations and in line with our broader sense of civic duty and contributing to public goods, rather than through the narrow prism of existing family relationships

• We should ‘predistribute’ as well as redistribute wealth, to ensure that people can build wealth more equally in the first place rather than relying on the tax system to share it around after the fact (which it doesn’t do very effectively at present); a society that allows a few people to become so wealthy while others do not in the first place is unfair

• There are many practical ways to do this, such as a citizen’s inheritance for everyone at the age of 25 (funded by inheritance tax), which would give everyone a chance to use their talents and exercise their individual agency; at the same time we should look for ways to reduce the importance of wealth inequality, for example by investing in stronger public services, strengthening the social safety net and ensuring universal access to decent housing, so that those with less wealth face fewer barriers to living well and maximising their potential

1. Some supportive stats:

• Income is taxed at an average rate of 33%, increases in wealth at an average of 4%

• Wealth inequality is almost twice as high as income inequality, with a Gini coefficient of 0.63 for wealth compared to 0.34 for income

• The ratio of wealth to income in the UK is growing rapidly; wealth was around three times national income in the 1980s, but is almost eight times national income today

• Most wealth gains since 2010 have been due to ‘passive’ asset price increases, so are unearned