For decades, the UK has been sleepwalking into a slow-burning, self-inflicted disaster.
Rising intergenerational inequality is a clear symptom of how wrong things can go when incentives are misaligned, economic activity is discouraged, and there is no apparent political will to fix it. That absence of political will is understandable when you look at the powerful, overlapping voting blocs in whose interests the British economy is run: homeowners and pensioners.
This isn’t a case of deliberate malice, but of people using a system that allows them to pursue their own economic self-interest. So homeowners fight tooth-and-nail to protect their most valuable assets, aided by a planning system that empowers the anti-development cause. Likewise, pensioners understandably cry blue murder at the idea of any reduction in the state pension – even if it means younger people paying even higher taxes to support their retirement. Politicians of all stripes, cowed by the sheer electoral heft of these groups, simply play along.
But the costs of running a gerontocracy are now becoming all too clear. By driving away young families and workers from their local area, vetoing house building or new infrastructure, the well-heeled Nimby element have ended up disadvantaging themselves and their own communities, making it ever harder for their own children and grandchildren to succeed.
And the brutal truth is that the UK faces a period of sustained economic strife unless we do things differently. A stagnant economy is being forced to bear the growing burden of an ageing population that is living longer than ever before. People under the age of 45 can only dream of owning their own home. The economy as a whole is losing out on tens of billions of pounds of productive activity every year.
That’s why the Adam Smith Institute has released a new report ‘Boomer and Bust’, looking at how to realign some of these incentives in a politically feasible way: creating policies that not only reassure older voters, but provide new hope and opportunity for the young.
Polling for our report suggests there are a few key areas where there is public support for policies which would close the divide. That’s not just about overtly youth-friendly policies like improving access to education and early employment, but areas that impact us all, like taxes.
For example, there is strong public support (66%) for extending a loan system to school leavers who choose to pursue a trade instead of going to university. These income-contingent loans would be the equivalent to a university loan, but could be applied to purchasing of tools, put towards training costs, or buying a vehicle. Not everyone needs to go to university, but many feel trapped by a lack of options to finance new ventures. A scheme like this would remove bias towards university and encourage the most efficient use of resources for the most people.
There are also some less headline-grabbing policies that would do a lot to realign some of the wonky incentives that persist in our tax and welfare systems.
Reforms to pensions and stamp duty would be an excellent place to start. Our report looked at moving the triple lock to a smoothed earnings link to ensure that pensions are protected during economic fluctuations but don’t arbitrarily increase by unsustainable amounts. Stamp duty disincentivises moving, downsizing, and improvements on housing, ensuring that our already strained housing stock stays mismatched.
Not all reforms will be popular, but we must look at ones which work to redress the misaligned incentives and misallocated resources. They are going to be the key to solving this generational crisis.
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