Tory peer calls for £10,000 ‘citizens inheritance’ for all 30-year-olds

While inheritance transfers are set to rise by a third, one in 10 millennials are set to get nothing. Photograph: Ziga Plahutar/Getty Images

Ministers should hand all 30-year-olds a £10,000 “citizens inheritance” amid fears a £1.5tn wealth transfer to millennials will deepen inequalities, a Conservative peer has urged.

David Willetts, who leads the Intergenerational Centre thinktank, called for the next government to implement a major new policy to spread wealth in Britain.

It comes as research showed parents whose assets have been boosted by soaring property prices and final salary pensions are poised to bequeath millennial children about £150,000 each on average.

While annual inheritance transfers are forecast to rise by a third to £145bn by 2033, one in 10 millennials are still set to get nothing. By contrast, the top 10% will get more than £500,000 each and many much more, analysis for the Guardian by the Institute for Fiscal Studies (IFS) found.

A separate analysis, by the estate agent Knight Frank, this week claimed that over the next two decades, $90tn of assets – mostly driven by rising house prices – will move between the silent generation and baby boomer and millennials in the US alone. This would make affluent millennials “the richest generation in history”.

The suggestion millennials were about to become rich was met by bemusement from many in the generation born between 1980 and 1994 who, while being derided by some for profligate spending on gourmet coffee and avocado on toast, have lived through slow wage growth, rising rents and the evaporation of dreams of home ownership.

The huge sums being inherited by a new generation could, nevertheless, result in a shift in the way money is invested, with research showing millennials are happier to hold cryptocurrency and assets that can show societal and environmental benefits.

Millennials are certainly set to benefit from having fewer siblings with whom to share windfalls than their parents – 1.8 compared with 2.5 for people born in the 60s. But most should not get excited about retiring early. The IFS said the typical age at which they will inherit is 64 – an age at which the Beatlessaid was apt for renting a cottage in the Isle of Wight and sitting grandchildren on your knee.

“It doesn’t matter if you are Conservative or Labour, a world in which inheritance matters more and earnings matter less is a less open and socially mobile society,” Willetts said. “[Inheritances are now] coming to people quite late in life. It will reinforce a pattern of inheritance where the grandkids will benefit. We are going to have some very rich inheritors and a growing number of people who never get on the housing ladder and rent until old age.”

Without reform, a key consequence of the way inheritances will be transferred is set to be widening inequality. Inheritances will only nudge up lifetime incomes by 5% for millennials from the poorest fifth of families while those from the richest fifth will enjoy a 29% wealth bump, the IFS said. That will probably mean the inheritance surge will also deepen wealth differences between people in the north and south, where property values have grown at vastly different rates.

For example, millennial friends who studied together at university and enjoyed similar economic circumstances through the bulk of their careers could see their fortunes diverge markedly when they inherit, placing tensions on social bonds. If their parent owned a home in London, they would have made £254,000 on average in house price growth over the past 15 years. But if their parent owned a home in the east of England or the north-west, that windfall would have been at least three times smaller.

Inheritance flows will probably exacerbate inequalities between white people and those from black African, black Caribbean, Pakistani and Bangladeshi backgrounds who are already half to a third as likely to receive lifetime gifts from their parents, possibly owing to them being less wealthy.

Willetts said too little had been done to spread wealth since the council house right to buy scheme and the privatisation of utilities such as British Telecom in the 1980s. He revived the idea of the citizens inheritance after first proposing it six years ago.

A similar idea has also been proposed by the IPPR thinktank, which is seen as increasingly influential on the Labour party.

Willetts said it could be paid for by lowering the threshold at which inheritance tax is paid – effectively £1m in many cases – abolishing exemptions while also reducing the current 40% tax rate.

The amount of money gathering in inheritable assets has been growing rapidly in recent years. David Sturrock, senior research economist at the IFS, said the average household led by people in their 70s holds 20% more wealth than the same group a decade ago.

“Working incomes are growing more slowly so the amounts [in inheritances] are a much more consequential part of your lifetime resources,” he said.