Playing generation games with housing and social care reform

Bruce Dear
There is no justice in young people providing for well-off pensioners (Source: Getty)

Housing drives the UK’s profound generational inequality.

Those who owned their homes during the 1990s have enjoyed a £2.3 trillion windfall.

Yet it is now harder for a young person to buy a home than at any time since the 1930s. The only “sin” of these millennials is to have been born too late.

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Unless we can close this age-assisted wealth gap, the UK economy will become increasingly inefficient and unequal.

Yet the chancellor, plagued by Brexit, had little to say about it in the Budget. A smidgen of stamp duty relief is hardly a silver bullet.

The main parties’ solutions shrink before the scale of the issue. Labour offers naive universalism, while the Conservatives’ policies are constrained by their pensioner base.

Still, we need to start a new debate. Here are some ideas to fuel it.

The UK spends £150bn a year on pensions, pensioner benefits, and pension tax relief. This is more than on any other area apart from the NHS. Pensioners enjoy free prescriptions, free public transport, winter fuel allowances, and (for the oldest) free TV licences.

Yet 25 per cent of 55-64 year olds live in households where total wealth is over £1m.

The UK is raining largesse on some of its richest citizens because of a noble, but surely outdated, universalist ideal. It was born in the entirely different world of post-war Britain, where life expectancy was low and the population rising.

This vision must be updated for post-Brexit Britain. We must always provide for poorer pensioners, but, whether by means-testing or taxation, it is now only just that universal pensioner benefits end.

Moreover, stopping regressive universalism is not enough. The unjust and chronic imbalance of asset wealth must also be addressed. Some argue inequality is never reduced except during societal crises. If so, let’s not waste this Brexit one.

Those with houses and assets worth more than, for example, £2m could be asked to pay an annual three per cent asset tax into a dedicated fund to house the young.

Such a tax is both fair and progressive, because asset wealth is mostly unearned (e.g. house price inflation), and the UK’s asset inequality is far greater than its income inequality.

As well as introducing an asset tax, the inequality gap could be reduced by asking wealthy pensioners to use their assets to pay for their own care, up to a capped level.

It is not right that the taxes of young people continue to pay for the majority of pensioner care. There is no justice in others providing for well-off pensioners, who then leave substantial untouched assets to their children.

To be clear, we are not talking about “envy” taxation here. The cost of caring for the elderly is rising inexorably, and it is only sensible that those pensioners with substantial assets should help to meet it.

The money saved and raised by these measures should be ring-fenced and used to help provide state and council funded mass modular housing for young people. If we can give our young people affordable modular homes to buy and rent, we remove a major plank of their inequality.

Young people born in the 1980s are spending a fifth of their income on housing. At the same age, those born in the 1940s were only spending 10 per cent of their earnings on housing.

If we can remove the heavy cross of housing costs from our historically disadvantaged young people, they will be able to save and spend more on economically beneficial activities.

But the young will get old and they must prepare for it, or they will become a tax burden themselves. So we should extend pensions auto-enrolment and ask young people to pay more into it.

Alongside this, we should build on a Japanese idea and introduce a compulsory social savings and insurance scheme to cover care costs in old age.

These policies would give the young three key elements of asset wealth: a home, a pension, and a care-costs insurance fund. These would give them a platform from which to build further wealth and security.

At the other end of the life cycle, asking wealthy seniors to pay an asset tax and contribute to their own care would redistribute wealth across the generations and shift social care costs to where it is fairest that they fall.

With these policies, targeted at both old and the young, we could begin to close the UK’s damaging generational wealth gap and to build a more united and socially mobile society.

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