Reducing inheritance tax: populism and financialisation

James Wickham: Last week one of the first proposals of the new government was to raise the threshold for inheritance tax.  This is one of those measures that can have popular appeal and which are actually extremely regressive.



Neo-liberals should be passionate advocates of inheritance tax.  After all, if you seriously believe that hard work and talent should be the main determinants of people’s economic success, then you would want to tax inherited wealth!  Serious arguments for inherited wealth could come from very traditional conservatives who believed that property came with responsibilities and that the wealthy were custodians of social values.   Such arguments could hardly be made by contemporary neo-liberals.  Inheritance contradicts a basic tenet of neo-liberalism, the need to reward individual achievement! 

Passing on wealth must reduce social mobility, because it means that those who are clever enough to be born to wealthy parents start life with greater advantages.  This was always the case, but the social changes of the last few decades have made it more  important.

Firstly, property has become more important.  The majority of European households are now property owners.  Thus half of all British households have a net wealth of at least £218,000 (ONS 2014); across 15 Eurozone countries overall median household net wealth is €109,200 (ECB 2013: 5).  This is lite wealth, wealth for the masses.  Many households have private housing; individuals own company shares and other financial assets, they have private pensions and certainly own their own private transport.  While the wealth of any one individual is insignificant for the wider society, it can alter its owner’s life chances and possibly their self-understanding.  In aggregate this mass wealth changes the social structure of the society as a whole.

Especially in Southern Europe, extensive small property ownership is nothing new.  Large numbers of small farmers or small shopkeepers receive income from their property with which their social and personal identity is entangled (the family farm, the family shop).  Such proprietorial property is in turn one basis for the extensive home ownership, financed through inheritance or savings.  By contrast, in financialised societies, property owners are encouraged to treat their assets as a portfolio to be continually reconstituted.  Assets are liquid, marketable and have limited emotional value (Langley, 2009).  As the UK government’s Homebuy policy explicitly stated: ‘Homes are not just places to live, they are assets’ (Smith 2007).

Wealth now matters in ways that it did not before, because money matters more.   Take the case of education.  Once upon a time, confronted by the fact that children from middle class backgrounds tended to end up in middle class jobs, sociologists analysed how social inheritance depended on cultural and social capital.  In the more ‘fordist’ societies of the middle of the last century inheritance was largely indirect.  Today however, the increasing commodification of education ensures that inheritance is more direct.  Broad swathes of middle Ireland pay for grinds, hoping to buy for their children extra points at the Leaving Cert,  At a more rarefied level, across Europe the wealthy are increasingly opting out of state third level education to buy their children places at elite British and American universities (Oxbridge, Ivy League…).  Yes of course the kids have to do well in exams, but for them money is now a necessary if not a sufficient condition for educational success.

Secondly, the occupational structure has been changing.  Very schematically we can envisage the shapre of the social structure at the start of the last century as a pyramid, the social structure of the 1970s as a diamond and that of contemporary society as an egg-timer (Figure 1).  In the first most jobs are at the bottom, in the second most jobs are in the middle, and today jobs grow at the top and the bottom.  The obvious consequence is that the opportunities for social mobility are reduced.   In the struggle to escape decling opportunities in the middle, assets count more than before.

Figure 1  Images of occupational structure

 

Put these two trends together and you have the USA.  A society which is more than ever before divided by social class – and where social class is increasingly inherited (Putnam 2015).

What has all this got to do with inheritance?  It means that for a significant number of people the level of inheritance tax is a real issue, not just because they have property, but because their ability to pass it on to their children will make a bigger difference to those childrens’ lives than before.  At the same time, allowing such inheritance will further consolidate social immobility.

References
ECB - European Central Bank - Eurosystem Household Finance and Consumption Network (2013) The Eurosystem Household Finance and Consumption Survey: Results from the first wave.   Frankfurt: European Central Bank.
Langley, Paul (2009) The Everyday Life of Global Finance. Oxford UP.
ONS - Office for National Statistics (2014) Wealth in Great Britain Wave 3, 2010-12. Office for National Statistics.
Putnam, Robert (2015) Our Kids: The American Dream in Crisis. NY: Simon & Schuster.
Smith, Susan J. (2007). 'Owner-occupation: at home with a hybrid of money and materials.'  Environment and Planning A 40.3: 520-535.

Advertisement
There’s more about the new forms of both lite wealth and heavy wealth in Chapter 4 of my book Unequal Europe:  Social divisions and social cohesion in an old continent (London: Routledge, 2016).