The social contract between the older and younger generations is falling apart, and a new report is suggesting radical measures to restore ‘generational fairness’, writes Rebecca Waterhouse
A report by an ‘intergenerational fairness’ watchdog reveals that the battle between millennnials and baby boomers is now more intense than ever. The Resolution Foundation’s Intergenerational Commission finds new evidence that government policies definitely favour the older generations, as the report finds that no generational cohort born since 1960 is accumulating more wealth than their predecessors.
Furthermore, the Commission, which aims to devise a strategy to ‘repair the social contract between generations’, also notes that two-thirds of those surveyed are pessimistic about young adults’ chances of improving on their parents’ lives. Housing, work and pensions are the key economic aspects used to measure the living standards of these cohorts.
The report suggests proposals to redress the generational imbalance, and interestingly, many of these focus on reforming the taxation of property, such as halving stamp duty rates to encourage moving; offering a time-limited capital gains tax cut to incentivise owners of additional properties to sell to first-time buyers and replacing council tax with a progressive property tax with surcharges on second and empty properties.
The report found that ‘millennials’ (those born between 1981 and 2000) were only half as likely to own their home by age 30 as ‘baby boomers’ (those born between 1946 and 1965) were by the same age and that earnings progress has stalled meaning that millennials are earning the same as those born 15 years before them were at the same age.
In respect of future pensions, the proposals are less drastic and focus on maintaining the value of the new state pension relative to earnings at a slightly higher level that the current positions and promoting larger pensions schemes which would be better able to share risk among savers.
The report also proposes a radical amendment to the inheritance tax system which despite its relative fiscal insignificance in terms of swelling the government’s coffers, attracts strong views from both ends of the wealth spectrum for social and political reasons and from many professionals due to its disproportionately byzantine complexity.
The report would see the abolition of inheritance tax altogether. It is suggested that inheritance tax could be replaced by a ‘lifetime receipts tax’ levied on recipients of gifts, rather than on the donor and with fewer exemptions when compared with inheritance tax. A lower tax-free allowance (a limit of £125,000 has been proposed) and lower tax rates.
The report suggests that £5 billion of extra revenue could be raised by the introduction of the lifetime receipts tax and abolition of inheritance tax and that this additional revenue should be used to introduce a £10,000 ‘citizen’s inheritance’, to be paid as an endowment to all young adults to support skills, entrepreneurship, housing and pension saving.
The report categorises the payment of a ‘citizen’s inheritance’ as ‘a bold demonstration that the state’s role in delivering the intergenerational contract can evolve for the 21st century’, which it certainly would be. Whether any of the main political parties will adopt such a policy remains to be seen.
Rebecca Waterhouse is an associate at Maurice Turnor Gardner