Published by Jim Boyd on 15 February 2018
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- The Reformer Blog
9 May 2018
The Resolution Foundation’s Intergenerational Commission has called for all 25-year olds to get a £10,000 one-off sum, which could be used to pay for property, education, set up a business or invest in pensions. This is not means-tested and will be available to all 25-year olds irrespective of their income or wealth. This would be paid for by abolishing inheritance tax and replacing it with a ‘lifetime limit’ of £125,000 with anything above taxed at 20 per cent up to £500,000 and 30 per cent after that.
I am sure this would be very welcome for millennials – but it appears to be tokenism given that £10,000 will not meet the average deposit of a first-time buyer in the UK or the average UK start-up which spends over £20,000 in its first year. I won’t go further about education or pensions. Also, I don’t think it really gives a hand-up to younger generations as it simply entrenches the wealth of those already privileged enough to receive support from parents, providing a welcome additional contribution for a deposit that others simply can’t afford or enabling them to pay off student debts more quickly than those who are poorer.
This windfall for millennials, which is intended to provide a ‘fair deal across the generations’ does, of course, result in significant consequences for the funders from older generations and particularly those who are less wealthy. It would be a shame if this proposal disincentivised the elderly from striving to increase their retirement savings in old age.
It is correct to acknowledge that pensioners have benefited from average income growth of over 15 per cent over the last decade, which is in marked contrast to those under 30, who are arguably among the most indebted generations ever. But I don’t believe this proposal really provides the fairness that the young might wish in terms of access to good jobs, free education for themselves or their families and generous final salary pensions schemes that older generations have benefited from.
Given the costs involved in creating parity, it might appear to the cynical that this is just a ploy to appeal to the young while failing to engage with the real issues which affect them.
The Commission does play an important role stimulating debate about ways assets can be allocated across generations in a sustainable and fair way. Inevitably this is complex and contentious. It recommends that older generations meet their own costs for the NHS with a £2.3bn windfall tax by calling for working pensioners to pay national insurance and a property tax to fund the same amount for care services. But to do this with proper public support this must result in demonstrably better public services and a clear understanding of the offer from the state. Failure to do so risks that some disengage and the well-advised find more elaborate ways to ‘game’ the system.
Jim Boyd, Deputy Director and Head of Research, Reform