The so-called “citizen’s inheritance” could help fix the “broken” inter-generational contract between baby boomers, many of whom own their homes, and millennials, who have struggled to get a foot on the housing ladder. The policy would be partly funded by the wealth of older people through a tax on what they try to pass to their children themselves.
The Resolution Foundation’s intergenerational commission spent two years studying the fracture between the generations in society before coming up with the solution, which it imagines as an ongoing boost to young people as they turn 25 rather than a one-off redistribution. It would come into existence as a rolling payment to 25-year-olds by 2030 – but older millennials who entered the labour market since the financial crash would also benefit. From 2020 onwards, the plan would give £1,000 to people born in 1985-6 – scaling up across the decade until the £10,000 mark is reached.
Education, deposits, pensions and start-ups
The citizen’s inheritance could be used for four purposes: funding education and training, deposits for renting and buying housing, investing in pensions or investing in starting up a business. Such financial problems for millennials – especially with housing and student debt – have received much media attention to date. A study by the Institute for Fiscal Studies last year said students now graduate with an average of £50,800 in loan debt. To keep the policy progressive, the lump sum would count against recipients’ inheritance tax allowance – so if they reached the threshold later in life, tax would kick in. Resolution proposes its own £125,000 “lifetime receipts tax allowance” to tax wealth, rather than the current inheritance tax system. When it comes to housing, the foundation believes the money could help with mobility – allowing young people to move around for work because of the availability of cash for deposits.
The policy would be funded by targeting the wealth already handed through the generations by richer people. The proceeds of the lifetime receipts tax allowance would go into paying for the citizen’s inheritance, along with money saved by scrapping things such as the Help to Buy scheme, which help already well-off younger people. Resolution says such scrappages could raise £1bn in the “medium term”. The intergenerational disparity could be a problem when it comes to funding care for an ageing population, if younger people in the workforce lack the means to fund it or the ability to benefit from asset-ownership.
Delivering on obligations
The intergenerational commission’s proposals may seem radical, but they were reached by a panel chaired by former Tory minister David Willetts and Carolyn Fairbairn, director general of business group the CBI, along with TUC union chief Frances O’Grady. “Britain’s contract between generations lies at the heart of society,” said Willetts. “As families we provide for our children and parents at different times. We expect the state to support these natural instincts, but too often it is tilted in the opposite direction. Many people no longer believe that Britain is delivering on its obligations to young and old.”
This article originally featured on our sister website www.inews.co.uk.