The Intergenerational Commission, basically set up by ‘Resolution Foundation’ to explore balancing out wealth, taxes, benfits for society to be fair for all, has suggested that pensioners should pay more in tax to enable young adults to be gifted £10,000 at the age of 25 to help with study fees, house deposits or other training and development. As you can imagine, the press coverage has been rife. Plenty of discussion boards slating the comments and others commending them. You can imagine demographically who would support such an idea and who would not. The aim being to heal intergenerational divide but will it really?
Trendy commentators and demographic experts class people in the following groups:
Baby Boomers - born, post war, 1946-1965. Much more likely to own their home, have decent pensions, the so called ‘you’ve never had it so good’ generation.
Generation X - born 1966-1985. Suffered some slow-downs, some hardship in earlier times, but still likely to own their home and be building some wealth.
Millennials - born 1986-2005. 50% less likely to own their home than Baby Boomers at age 30. Many finding it difficult to be able to afford to buy a house as income multiples are up to 10X.
To fix the intergenerational divide, the foundation suggests:
You will no doubt have your own views on the above and what is fair and what is not.
Ashley Clark, Director of financialadvice.net will below try to balance the situation as he believes the above report is more about raising their profile and creating debate rather than being a solution. Clark was born in 1966, Generation X. Generation Xs tend to be described as ‘cynical’ or ‘disaffected’. He suggests that he is just that.
Clark suggests: “Get real! All generations have it ‘hard’ at some points in their lives.”
Baby Boomers: His mother and father, baby boomers, grew up with ration books until 1954, were lucky to get an orange in their Christmas sack, went potato picking with the whole family to afford to live, regularly children went to school with no shoes or socks and generally inherited absolutely nothing from parents. Most ‘boomers’ did not even stand a chance of going to university and started work at 15. Most people did not have cars, you walked to work, got a bike or had public transport, you worked (mostly from age 15), you saved. But you could always get a job or an apprenticeship. House prices were lower multiples of income but strict rules mean’t you worked hard to save deposits of around 20% - 30% over a number of years to be able to afford to buy a house. It was not easy and now people wish to penalise Baby Boomers for having lived through extremely tough times but still managed to buy their own home and having already paid their social security in full over 40 or 50 years.
Generation X: 1970’s council estate Britain where money did not flow. The 1973 Oil Crisis, Britain being bankrupted in 1975 (yes Britain, not Greece being bailed out), the Winter of Discontent with strikes commonplace, rubbish on the streets, the UK in recession in the early 80’s with mass unemployment, Yosser Hughes “Gissa job”, no major job prospects for many and Thatcher coming to power to bring in boom/bust economics and ‘yuppies’ in the mid and late 80s. Normal Tebbit telling us to ‘get on your bike’ to find work. You got a job, you tried to better yourself, university and further education became more accessible without tuition fees, you also got hit by 15% and 16% mortgage interest rates in the late 80s, you survived negative equity when house prices tumbled in the 90s, you survived paying poll tax and eventually came out the other side. Some have made it and own their own home, others did not quite make it and still rent. This was also the start of a generation of ‘Benefits Britain’, some trapped in it, unable to get out, others becoming ‘benefits institutionalised’ and happy to not try and still expect money to be handed to them. You also learned not to trust any politician. Generation X did not get it all handed on plate and had some very tough times.
Millennials: For many they see this generation as having an easy ride in childhood years, no corporal punishment at school and yet headlines constantly suggesting our children need help and find it difficult to cope with the pressures of life. A generation of techno kids, many having the latest trainers, fashion, phone, games consols, hundreds of TV channels, cheap foreign holidays, most families having a car. Social media made peer pressure hard and cyber bullying another pressure. Higher Education/University access is harder given fees now payable and jobs are generally low paid to start with as they were with Generation X, but many millennials are so used to having what they want when they want, they are not used to it being hard. That said, this is not their fault, it is simply the generation they are in. Because Millennials are so used to the ‘have it now, throw it away’ generation, they seem to crave the latest phone, new car, go on foreign travels and move out to rent before they have earned the right to do so. The World is now a ‘smaller place’ and this generation has grown up being more aware of the World and what is out there. It is only to be expected that they want it. The trouble is that many Millennials, but not all, have generally had a very sheltered childhood and expect life to be the same ‘easy street’. It is not. Rents are higher than mortgages, having lived through an extended period of lower interest rates, many suggest it is not fair that they cannot get on the housing ladder to take advantage with house price multiples of 10X (but it was the same for many Gen Xs) and larger deposits required. It is obviously very hard for millennials, as it was hard for the baby boomers and generation Xs but for very different reasons.
Taxing or forcing additional social security on pensioners to gift £10,000 to 25 year olds is quite simply a joke! Did it work when Labour gifted £250, £500 and sometimes £1,000 into Child Trust Funds? You know the answer to that.
The reality is that successive governments have totally ignored, dare we say for political gain only, the reality of the demographic change in this country. In 1978, Basic Rate Tax was 33%, reduced to 30% in 1979 and higher rate tax reduced from 83% to 60%. In 1986 basic rate tax was cut to 29%, in 1987 cut to 27%, in 1988 cut to 25%. Higher rate tax was cut in 1988 to 40%. Since then, basic rate tax was reduced to 24% in 1996, 23% in 1997, 22% in 2000 and 20% from 2008. Baby Boomers paid much higher taxes in the past, Generation Xs still paid higher taxes and today, Boomers, Gen Xs and particularly Millennials are paying nowhere near the taxes their parents and grandparents did.
Is it in any wonder that the NHS, social care, emergency services and the armed forces are under so much pressure? Most western, developed nations have also reduced taxes over the last 40 years hence the eye watering public sector debt that most now have. It is time to stop protecting your backs MPs just so that you get elected, is it time to do the job that you are paid to do, face demographic reality and have income tax rates at levels that are realistic? In this way, those that can afford to pay will pay, millennials that are just starting out will not suffer as much but will pay their way when they are further up the ladder and who knows, we just might have a happier society with a fully funded NHS, social care that works, more police on the streets and an equipped military, rather than aircraft carriers with no aircraft!
Clark said: “I am sure if you took a national poll which asked for an extra 3%, 4% or 5% on income tax to fund the NHS, social care, emergency services et al, many would vote ‘yes’. Don’t tax the pensioners to help the youngsters, tax us all fairly and realistically to offer the society and services that we need.”
Views are personal to Ashley Clark and not those of Roberts Clark IFS Limited.