Why some inheritance regimes are more unequal than others | Torsten Bell

Wealth is a big deal: household wealth in Britain has surged in recent decades to over £15tn. And it’s unequal, with wealth inequality twice as high as income inequality.

This matters. What wealth you can inherit, rather than what you earn, increasingly decides who owns a house and who can retire before their late 60s. Almost half of twentysomething first-time buyers receive financial support, largely from parents, averaging £25,000.

History shows the effects can be long lasting. In the 19th century, Germany had different inheritance regimes. In some areas (largely in southern and western Germany), land was equally split between children; in others it was indivisible: one lucky heir got the lot.

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New research shows that this shaped wealth inequality in late 19th- and early 20th-century Germany (more people owned smaller farms in areas where inheritances were equally divided). But, while there was little income difference between areas with the two inheritance regimes at the dawn of the 20th century, long-term growth was subsequently higher in places with more equal land holdings. Gaps opened up in the interwar years as new industries (eg cars and chemicals) spread and grew postwar. Today, incomes are 6% higher in areas that started out more equal in terms of wealth.

Why? More people with some wealth expanded the pool of potential entrepreneurs who could take risks as the industrial revolution swept Germany, driving more patenting and people working in manufacturing. That supported the emergence of the Mittelstand of successful family-owned firms – which is when things get complicated, because families making profits from those firms means these places have less equal incomes today. Being more equal yesterday underpins places being richer, but also more unequal, today. Wealth, and its effects, last.

Torsten Bell is Labour’s candidate for Swansea West