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‘Harder now than any point in last 50 years for poor to move up wealth ladder’

People born into poorer families could be finding it more difficult than at any point in the last 50 years to move up the wealth ladder, researchers have suggested.

Parental income and wealth is of even more importance nowadays in determining someone’s income across their lifetime, a new report from the Institute for Fiscal Studies (IFS) said.

The economic research organisation said its predictions suggest inheritances will be twice as big on average for those born in the 1980s as for those born in the 1960s.

This is down to various factors including older generations having increased levels of wealth due to higher house prices and the fact that people are having fewer children than in the past, the IFS said.

Parental income is a stronger predictor of income for people born from the 1970s onwards than for previous generations, it added.

But the organisation said there are stark differences for people from different backgrounds and in different areas of the country, with those growing up on free school meals (FSMs) – an indicator of disadvantage – earning thousands less than their peers by the time they reach their late 20s.

While children from most ethnic minority groups on FSMs tend to out-perform their white peers in school, this advantage is reversed when it comes to work, the IFS said, as men from Pakistani, black African and black Caribbean backgrounds who grew up on FSMs end up earning less than white men who had FSMs as children.

The research, part of the IFS Deaton Review of Inequalities funded by the Nuffield Foundation, looked at lifetime income distribution – how much income people get from employment earnings and inheritance over their lifetime compared with other people.

It found that young people from Pakistani and Bangladeshi families are less than half as likely as their white peers to receive a substantial financial gift from their parents over a two-year period.

Looking at geography, men and women who grew up on FSMs in London tend to have better earnings later in life than those in the North of England, the IFS said.

People with parents living in London stand to inherit about twice as much on average as those with parents living in the North East or Yorkshire and the Humber, the organisation said, making it more difficult for children from relatively low-income backgrounds in lower-wealth parts of the country to move up in terms of total lifetime income.

The IFS said its research has shown that a man born between 1986 and 1988 who grew up on FSMs earned on average £7,700 less at the age of 28 than a man who did not. For women, the difference was almost £10,000.

David Sturrock, a senior research economist at the IFS and an author of the report, said: “It is bad enough that it seems harder for children from poorer families to move up in the earnings distribution than it was 40 years ago.

“But this may understate the true challenges we face with respect to social mobility, which are made worse by a long period of overall earnings stagnation alongside the increased importance of wealth and growing wealth gaps between North and South.

“Poorer children from the North and Midlands face the combination of poorer educational outcomes, weaker local economies and relatively low levels of inheritance from their parents.

“While the educational achievements of ethnic minority children from poor backgrounds are a success story, for many of them this is not translating into higher later-life earnings as we might expect, and on average they can rely much less on receiving wealth from their parents than White children.

“It may be harder now than at any point in over half a century to move up if you are born in a position of disadvantage.”