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Comment: How to help generation avocado's saving struggles

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Comment: How to help generation avocado's saving struggles

The Resolution Foundation’s groundbreaking report into intergenerational fairness has dominated news headlines in recent weeks (when Royal Wedding build-up has not been on). It came up with the radical idea of giving 25-year-olds £10,000 each.

So far the majority of politicians, policy experts and the public have been outraged at the idea of handing these lazy millennials £10,000 each to waste on avocados.

I doubt former Tory minister David ‘two-brains’ Willetts thought it would be seriously considered by the government. Even last week’s article focused on the paper’s other points.

Instead what Willetts sought to do was create much-needed debate about the huge intergenerational unfairness in the UK.

Setting the agenda

Speaking on BBC Question Time earlier this month, Chloe Westley, a campaign manager at thinktank the TaxPayers’ Alliance, argued what millennials really want is lower taxes, not a handout. That, to me, seems more than a little ludicrous.

To see the policy debated in the first section of Question Time, as well as the flurry of other media coverage, means this agenda-setting plan is clearly working.

But the idea of giving all 25-year-olds £10,000 should not just been seen as a publicity gimmick. It is an idea that, given the current balances between generations, does deserve some serious thought.

Property is central to the debate about intergenerational balance. In 2018 people can expect to pay around 7.8 times their annual salaries on a house purchase in the UK, according to the Office for National Statistics. In the 1970s, the ratio was around three times annual income.

But this rise is only half the picture. I am a millennial. When I moved to London for my first job in journalism almost half my salary went on my rent (for a room a hair’s breadth bigger than a double bed).

My rent percentage now sits at just above a third of my income, four or five years later.

House and rent prices are crippling high compared with salaries. It is hardly surprising millennial families are half as likely to own their own home at 30 than baby boomers at the same age, according to the Resolution Foundation.

Then there is the student debt issue (one my parents did not have to worry about as they never paid tuition fees). A student graduating from a four-year university degree today will take on average debt figures of nearly £50,000, which will accrue interest.

This is not really debt but a graduate tax on young people, which the vast majority will never fully pay back.

There are other large structural issues at play here. The triple lock on the state pension means pensioners each year are enjoying higher rates of income increases than working millennials.

The Resolution Foundation found the disposable incomes of millennials are not higher than the previous generation.

And the generous defined benefit (DB) pensions that will stand baby boomers in very good stead for their retirement will not be enjoyed by today’s millennials.

Inheritance inequality

Part of the reason the Resolution Foundation is calling for the £10,000 handout is because of the current inheritance tax system will benefit some of that generation much more than others. Many young people today will receive very generous inheritances from their parents and grandparents, but others will not.

The vast swathe of DB transfers will only add to this growing inheritance wave. That will reach some of today’s millennials. But this only helps the young people who have parents rich enough to pass wealth to them.

Another idea would be to simply cancel student debt to boost the incomes of millennials. Though this would not help those who do not go to university.

The problem with these ideas, however, is they have little appeal for older voters.

Willetts’ plan to get people talking about intergenerational unfairness is working. The big task now is making policies that help the young but are also palatable to the electorate as a whole.

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