Wealth and inheritance in Britain from 1896 to the present

A B AtkinsonNuffield College,

Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, and

London School of Economics

Plan

1. The recent rise in UK personal wealth

2. Inheritance in the UK: sources and methods

3. A return of inheritance in Britain?

4. Comparison with France

5. Conclusions.

1. The recent rise in UK personal wealth

Role of housing

National wealth/income

Public and corporate sectors

2. Inheritance in UK: Sources and methods

Data from 1896 to 2008 (only 13 missing years)

Need adjustments

• Non-filers;

• Exempt (settled) property and under- and over- valuation;

• Gifts inter vivos not subject to duty.

NB Not all adjustments made in estimating total wealth apply.

Gifts inter vivos

3. Return of inheritance in UK?

2 U-shapes

U U

In relation to total personal wealth

Accounting equation

Basic accounting equation used by Piketty: ratio of transmitted wealth, B, to national income, Y, is equal in year t to

Bt/Yt = mt μt* Wt/Yt

where mt is the mortality rate, μt* is the ratio of the average wealth of decedents (corrected for gifts inter vivos) relative to the average wealth of the living, and Wt denotes total personal wealth, or Bt/Wt = mt μt*

Mortality and μ

Decompositioon

Piketty on France: “the historical decline in the mortality mt seems to have been (partially) compensated by an increase in the μt* ratio. Consequently, the product of the two, that is the inheritance-wealth ratio bwt = mtμt*, declined much less than the mortality rate”.

In the UK, from 1977 to 2006, the rise in the B/Y ratio by a factor of 1.69 can be seen as the product of 0.75 (mortality decline) 1.23 (rise in μ*) and 1.83 (rise in W/Y). In the earlier upturn, from 1921 to 1932, by a factor of 1.54 can be seen as the product of 1.06 (slight mortality increase) 1.03 (virtually constant μ*) and 1.41 (rise in W/Y).

4. Comparison with France

France

Comparison

Decomposition change 1977 to 2006

France UKRise in B/Y 2.39 1.69made up fromChange in mortality

0.79 0.75

Change in mu 1.75 1.23Change in B/Y 1.74 1.83

Note: Each cell shows the ratio of the 2006 value to that in 1977, so that B/Y in France in 2006 was 2.39 times the value in 1977.

Conclusions

• Estate data for UK not go so far back in time, although more frequent in recent years;

• Knowledge about gifts inter vivos much less satisfactory in UK; and adjustments approximate;

• Have seen recent rise in B/Y but less than in France (unless increase in gifts under-stated);

• Rise in UK mostly driven by rise in W/Y;• Also U-shape in first third of C20;• Need to interpret recent U-shape in light of

changing net worth of public and corporate sectors.

More urgency for reforming wealth transfer tax