What caught my eye this week.
There’s a growing sense – I’d argue a reality – of intergenerational inequity in the UK, as with many other developed countries.
Whether the old having so much more than the young is an inevitable consequence of late capitalism, a comorbidity of a broken housing market, the demographic bulge bracket baby boomers not paying their way, or just what happens when an economy is no longer booming like it did in the 1950s and 1960s is hard to tell.
Probably it’s a bit of everything. But in any case, assuming we don’t want to transition permanently into neo-feudalism, the next question is what’s to be done?
One option is to directly favour the young with government largesse. For various reasons, mostly political, we’ve triple-locked away that solution for now.
The other obvious redress, redistribution, is even more controversial. At least outside of the editorial meetings of Socialist Worker.
Redistribution – taxing those with more to give to those with less, obscured by so many smoke and mirrors – at least treats the thing directly. Handy if the age aspect is a red herring, and really we’re just looking at greater wealth inequality.
The big snag though is that redistribution tends to infuriate those whose stuff is being redistributed.
As the UK tax take of GDP soars, statistics showing the top 1% already pay 30% of all income tax imply they have a point – even if income tax is not everything.
The bank of grandmother and grandad
There’s one kind of redistribution that both the richest and the rest of us tend to support though.
And that’s inheritance passing wealth down the generations.
True, long-time readers know that this is where I’d personally position the nation’s best tax-collecting apparatus.
On both moral grounds and in light of my neo-feudalism fears, I’d far prefer to tax dead people who can’t feel the pain than young people working, saving, and still not having enough money for a house deposit or a proper pension.
But hey, I’m in a minority. Inheritance tax is widely considered to be the UK’s most unpopular tax. Most people hate it.
And yet it exists – and from the perspective of its critics, it gets in the way of the frictionless redistribution from the father to the son.
(And the mother and daughter of course, but as we’re in the realms of neo-feudalism here, let’s have all the trimmings!)
How soon is now?
By far the best and easiest way to avoid inheritance taxes tithing such wealth transfers is for the eventually-to-be-deceased to give their money away sooner.
Currently no tax is due on anything given away if you live for seven more years.
To me, this longevity lottery seems a bit ridiculous – if again entirely in keeping with the same medieval thinking that makes inheritance taxes so unpopular.
Why should a family be penalised because a beloved elder gets an unexpected cancer or meets the wrong end of a bus?
Nevertheless, encouraging the rich to pass down their wealth sooner does have one undeniably huge benefit, as Jonathan Guthrie outlines in a (paywalled) article in the Financial Times this week.
As things stand, Guthrie writes:
…the most striking feature is how little we decumulate. Most folk die with more than 60 per cent of their peak lifetime assets.
Adult offspring are therefore liable to inherit large sums when they themselves are approaching retirement, when the utility of the money may be lower.
Giving sooner improves the lives of heirs earlier, and in material ways. Perhaps the chance for a parent to take a few years off to care for young children, or for a family to buy a house with bedrooms for all the kids from the start. Compare such uses to the money simply sitting in a septuagenarian’s bank account, maybe with a bit of the interest funding one more Caribbean cruise that gilds the lily.
Earlier inheritance might even help with the housing market, if it reduces the tendency for older generations to rattle around in big houses full of rooms they don’t use while young families grin and bear an open-plan kitchen-diner-hallway-sofa-bedroom.
Well, solves it for the moneyed classes at least. But that’s neo-feudalism for you…
An age-old story
Guthrie suspects traditional inheritance practices have yet to adjust for extended longevity, writing:
When lives were shorter and child-rearing began earlier, legacies from dead parents materialised closer to the point of greatest utility for heirs.
This must be right. Even oligarchs in the Middle Ages were lucky to make it to 60.
Naturally we all want to live longer lives. But if it means ever more wealth piling up at the right-hand of the curve where it’s unlikely to ever be spent, then something – literally – has to give.
I’d suggest if we’re to avoid a ‘Gen Z Uprising’ in the history books alongside the First Baron’s War, the Peasant’s Revolt, the Boston Tea Party, and the Bolshevik Revolution then more efficiently keeping it in the family isn’t going to be enough in the long run.
But getting wealth redistributed sooner – to where it will do the most good for those who are fortunate enough to inherit – is at least a start.
Have a great weekend.
p.s. Thanks to everyone who entered our Christmas sweatshirt competition. I’ll contact the winners this weekend to make sure they’re not Russian chatbots or whatnot, and announce the ‘lucky’ recipients next Saturday!
From Monevator
What derisking your portfolio looks like [Members] – Monevator
Surviving system meltdowns and cyber attacks – Monevator
From the archive-ator: Are you ready for interest rate cuts? – Monevator
News
British economy shrank by 0.1% in October – Sky
“I’m helping first-time buyers onto the ladder because the government isn’t” – Standard
‘Moron premium’ costs the UK up to £7bn a year – This Is Money
Huel and Moneybox head to No 10 as chancellor Reeves courts scale-ups – BBC
Government launches review of energy standing charges – This Is Money
EU backs indefinite freeze on Russian cash ahead of Ukraine loan plan – BBC
Teenager who received world-first Leukaemia treatment is now cancer-free – Independent
Unusually, long-term US interest rates have risen in the face of Fed rate cuts – Apollo
Products and services
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Could UK mortgage rates be below 3.5% by Christmas…? – This Is Money
…and where are buy-to-let mortgage rates today? – Which
Interactive Investor will rollout new prices in February – Interactive Investor
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Monzo and Zopa launch new cash prize draws – Which
Even with £50,000, Premium Bonds are a lottery – Be Clever With Your Cash
Do green mortgages offer better rates? – Which
iWeb is no more, it’s all Scottish Widows now – Simple Living in Somerset
Are cinema memberships worth the money? – Be Clever With Your Cash
Cozy cottages for sale at Christmas, in pictures – Guardian
Comment and opinion
Overcoming financial hopelessness – Financial Samurai
Boring investing still works – A Wealth of Common Sense
Are we in an index fund fuelled bubble? – Humble Dollar
The planet-sized error of treating bonds like stocks – 3652 Days
Financial wellbeing if you’re broke but happy – Advisor Perspectives
Defensive investing: what 200 years of data says [Research] – SSRN
Never too much about SOR and SWRs mini-special
The biggest risk for new retirees – Morningstar
Revisiting ‘safe’ retirement rates for retirees – Capital Spectator
Naughty corner: Active antics
Hold the dip [PDF] – AQR
How investment trusts are adapting to the new realities [Paywall] – FT
Does private equity really beat public market investing? – Larry Swedroe
Berkshire Hathaway sets the table for Greg Abel – Kingswell
AI in venture capital – Enterprising Investor
Bitcoin ETFs are new. Investor underperformance is an old story – Morningstar
Kindle book bargains
Quit: The Power of Knowing When to Walk by Annie Duke – £0.99 on Kindle
A Man for All Markets by Edward Thorp – £0.99 on Kindle
The End of Reality by Jonathan Taplin – £0.99 on Kindle
Lean In: Women, Work, and the Will to Lead by Sheryl Sandberg – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Environmental factors
Will net zero really cost UK households £500 a year? – Guardian
Rising sea levels are already affecting US home prices [Research] – Richmond Fed
GDP growth no longer linked to carbon emissions in most of the world – Guardian
Would you pay up for climate pledges? – Klement on Investing
White storks to make historic return to London in 2026 – Guardian
What if the economy was modelled after ecology? – Atmos
Robot overlord roundup
The case that we’re over-investing in AI infrastructure – Paul Krugman
To grow we must forget, but AI remembers all – DOC [h/t Abnormal Returns]
Can machines suffer? – Aeon
Creatives bemoan the impact AI has had on their jobs… – BBC
…but tech veteran Tim O’Reilly argues we can thrive with AI – Big Think
Meanwhile, Moonpig says use of AI is driving up greetings card sales – Guardian
Not at the dinner table
13 rebel Labour MPs join Lib Dems in vote for talks on rejoining EU customs union – BBC
Everyone is gambling and no one is happy – Kyla Scanlon
US could ask tourists for five years of social media history – BBC
Europe is under siege – Noahpinion
America has become a digital narco-state – Paul Krugman
Trump pardons like a super-villain from Batman… – The Bulwark
…and this recipient went straight back to his old tricks – Bloomberg
Off our beat
The longest solar eclipse in 100 years is coming – Wired
How Britain lost its shipbuilding industry [Podcast] – A Long Time In Finance
With ‘super-flu’ circulating, should you get a vaccine? – BBC
Understanding carriage [On Netflix / Time Warner] – Seth Godin, Stratechery, Variety
Stagnant construction productivity is a worldwide problem – Construction Physics
If war broke out how long could Britain really fight for i? – BBC
The art of loitering in London – The Londonist
Why we save anything at all – The Root of All
And finally…
“Money often costs too much.”
– Ralph Waldo Emerson, The Conduct of Life
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The post Weekend reading: Redistribution, sooner or later appeared first on Monevator.
