Renegotiating the Intergenerational Contract
Could a citizen's inheritance of £10,000 at 25 give young people in the UK some much-needed financial security?
It’s reasonably safe to say that parents expect their children to be better off than they were at the same age. Polling shows that, across age groups, the majority of people expect the next generation to have better living standards than the previous one. However, the figures also reveal a consensus that this expectation is not being met. Given that the unique challenges facing the younger generation are widely recognised, what is standing in the way of making progress in re-balancing the intergenerational contract? The debate is often framed as a generational battle, but the answers are more likely to lie in mutual sacrifice and collaboration, than in a fight to reinforce the interests of one group at the expense of another.
The generational contract is broadly defined as a younger generation that is nurtured, educated, and given opportunities by the elder, who then expect their health and social care needs to be met in later life as an exchange. So far, so simple. However, the unique legacy of demographic, social, and economic shifts seen in the last couple of generations has tipped the scales to one side, a trend that shows little sign of reversing. The younger generation, broadly defined as millennials born from 1981 onwards, came of age during, or in the direct aftermath of, the 2008 financial crash. Although unemployment did not increase at the same rate as during the recessions of the 80s and 90s, wages have risen much more slowly, if at all. At the same time, unions, job security, and company pensions have all been weakened. 30-year-olds now earn a similar amount to those born fifteen years before them did, at the same age, and are much less likely to have significant assets to fall back on.
On the other hand, and often used as a stark contrast to the experience of millennials, are the baby-boomers, born between 1946 and 1965. The sharp increase in the post-war population meant that the ratio of those of working age to non-working age was high, a trend that is now flipping on its head as the baby-boomers retire, with the smaller cohorts that follow them bearing more of the tax burden, whilst also getting less out of the welfare system than they put in. Unsurprisingly, being part of a bigger cohort, such as the baby boomers, gives you increased market and voting power. Savvy politicians and capitalists have catered to the needs of the largest bloc, explaining the tendency of economic policy to favour the interests of the older generation, at the expense of the young. It might be good politics, but it doesn’t make for a cohesive social fabric in the long term.
In response to this, the recently published report from the Intergenerational Commission at the Resolution Foundation outlines possible ways to achieve the twin aims of enabling younger people to build up assets, while also plugging the gaps in NHS and social care funding. Giving some security in an insecure job and housing market, while also ensuring the older generation receive the health and social care expected in a modern, developed society.
The headline-catching proposal is a £10,000 lump sum, given to every young person at the age of 25. Funded through changes to inheritance tax and supplemented by council tax surcharges on second and empty homes, the "citizen’s inheritance" aims to re-distribute wealth, giving young people much-needed assets in an uncertain economy. The lump sum could be used for specific reasons such as a pension contribution, further education, starting a business, or paying for a house deposit. Other suggestions are the extension of national insurance to those in work but over pensionable age, who are currently exempt. These changes aim to plug the gaps in NHS and social care funding by shifting the burden of taxation to the people most likely to use these services. It is an attempt to re-balance the scales of the uneven generational contract and spread assets more evenly across the population.
The intergenerational debate can feel cold, especially when using labels such as "millennial" and "baby-boomer," inevitably leading to the framing of the issue in terms of "us" against "them." However, the generational contract is mirrored on a smaller scale within families. When viewed that way, of course, grandparents want their grandchildren to have a secure future and to own a home, and of course, grandchildren want their grandparents to be comfortable in their retirement, looked after with care and dignity in their final years. Neither of these desirable scenarios are being realised at the moment. Whether there is the political will to implement the necessary solutions remains to be seen, but at least the conversation is starting, a good sign for generations to come.