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- The Reformer Blog
12 December 2017
As we end a year dominated by Brexit – we risk losing sight of another major shift in the UK’s political tectonic plates during 2017.
The young have started to vote at levels not seen for 25 years – creating a new age-based dividing line in British political life – with those aged under 47 now more likely to vote Labour and those older, Conservative.
This has thrown the accepted realities of British political life into confusion and politicians are having to respond.
The under-representation of the views of the young has been a long-accepted norm, as it is expedient for politicians to favour those with higher historical voter turnout – in the UK that has been the elderly.
If the current political preferences of under 47’s persist as they age, policies that entice the young will be all the more rewarded. The Autumn Budget offering stamp-duty concessions to first time buyers is such an example.
Older people make up a growing proportion of the population, most noticeably the ‘Baby boomers’, those born post-WW2 who are now retiring. Not only are more people retiring but they are living longer, with the oldest, those aged over 85, the fastest growing demographic.
With the youth vote growing there is a risk that the provision of public services for the elderly through direct taxation will be framed as a subsidy to pensioners from the young. This is because, firstly, the former have enjoyed sustained average income growth of nearly 15 per cent over the last decade, in marked contrast to those under 30, who are arguably among the most indebted generations ever. Second, over the next 15 years there will be 10 million more people aged 65 or over in the UK but only 3 million more of working age, as the dependency ratio between those who are retired and those of working age becomes increasingly strained.
Looking abroad, there are international examples of tension in managing intergenerational risk, with youth elements of major Dutch political parties opposing the much celebrated CDC pensions schemes. These appear attractive by sharing risks between all members and pooling the investment in one fund. In reality, this involves transferring risk from the old to the young, with the younger members bearing the risk of potentially reduced future pay-outs to ensure the benefits of older members are preserved. The young could be forgiven for thinking this is an intergenerational ‘ponzi’ scheme.
In the search for intergenerational fairness, there need not be a divisive narrative between generations. Not least because a superficial appraisal of the comparative wealth of older generations masks the significant levels of real poverty many pensioners face highlighted this week in a damning report by the Joseph Rowntree Foundation. We need the generations to recognise their respective needs and work together otherwise we will be unable to resolve major UK domestic issues, such as how to fund social care.
Reform has proposed one solution on this issue, replacing the current direct taxation model for funding later-life care with a pre-funded arrangement. Under this proposal, working-age people would contribute into a Later Life Care Fund. These pooled savings, run by the Government and outsourced to experts, would fund the care needs of the generation contributing to it. This fund can provide a viable source of income to meet the care needs of the contributing generation as it has been modelled to outpace the growth of the economy and contributors will also benefit from reduced care costs from new technologies.
This removes the unfairness of the young and poor transferring wealth to older and richer generations through direct taxation and no generation is at risk of funding the care of a disproportionately large cohort.
However, it requires support for the ‘transitional’ generation, which has to start contributing to the fund while still meeting the care needs of the elderly through direct taxation.
This needs the support of all generations and for Government to make tough decisions, inevitably through changes to inheritance tax, benefits and the pensions’ triple lock to smooth that process. The accumulated housing wealth of the elderly will be viewed as a legitimate source of funding for all governments.
With the right engagement and an understanding of the burdens of each generation, we can find enduring and fair solutions. The mass participation of the young in the 2017 General Election should create the stimulus for politicians to do so.
Jim Boyd, Deputy Director and Head of Research, Reform