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Old should pay £10,000 to young and pay more towards social care

08 May 2018

A New Generational Contract

This Resolution Foundation report recommends additional payments and support be given to millennials (the generation born 1981-2000), funded by baby boomer (those born 1946 – early to mid-60s) income, to prevent an inter-generational crisis.

A New Generational Contract

It should be read in conjunction with an earlier Resolution Foundation research report A welfare generation: lifetime welfare transfers between generations, which looks at the past contribution of generations towards the welfare state and considers two future models for welfare state spending and where the tax burden falls in each scenario.

There is no indication that either report has any support from the major political parties.

The Generational contract

The generational contract assumes that each generation becomes wealthier than its predecessor and contributes to the support of earlier generations in old age. A poorer younger generation threatens to break this contract.

There are two basic problems which arise from this, one for the younger generation and one for the older generation.

For the young it is a problem of wealth and income. Although employment has reached record highs, there has been a shift towards lower-paying and less secure jobs. Millennials also have lower home ownership rates and higher housing costs than their predecessors and are accumulating less wealth.

For the older generations, who are wealthier, it is a problem of paying for their future social care. Rising life expectancy and associated health costs means public spending on health, care and social security is set to rise by £24 billion by 2030 and by £63 billion by 2040. Funding for these increased health costs would fall disproportionately onto younger generations who have borne the brunt of recent living standards pressures. This is unsustainable in the long run and arguably unfair. The report recommends a shift of payment to baby boomers to ease the burden on younger tax payers.

Key recommendations

Contributions from baby boomers

  • Boomers should be required to pay up to a quarter of their wealth for their own care via a replacement to council tax and an increase in property-based private contributions towards care costs. Council tax would be replaced by a progressive property tax with surcharges on second and empty properties.

  • Those above State Pension age should pay an ‘NHS levy’, via National Insurance contributions, on the earnings and limited National Insurance on occupational pension income.

  • They should fund a payment of £10,000 ‘citizen’s inheritance’ to young people (age 25), via a lifetime receipts tax, which would replace inheritance tax.

Work support for millennials

  • There should be new £1 billion ‘Better Jobs Deal’ that offers practical support and funding for younger workers most affected by the financial crisis to take up opportunities to move jobs or train to progress.

  • £1.5 billion to tackle persistent under-funding of technical education routes.

Housing support for millennials

  • Indeterminate tenancies should be the sole form of private rental contract, with light-touch rent stabilisation limiting rent increases to inflation for three-year periods and disputes settled by a new housing tribunal.

  • Halving stamp duty rates to encourage moving and a time-limited capital gains tax cut to incentivise owners of additional properties to sell to first-time buyers.

  • Build more homes, year in, year out, in areas of strong housing demand.

  • Pilot community land auctions so local authorities can ensure more land is brought forward for house building, underpinned by stronger compulsory purchase powers; and a £1.7 billion building precept allowing local authorities to raise funds for house building in their area.

Millennial pensions

Initiatives to ensure self-employed and those on lower incomes receive occupational pensions.