Generation Strains

The generational divide isn't just in how much we get, but also how much we want to give.

Ed Miliband’s comments in a recent interview that "redistribution is important but it's not the only route to social justice" could be more important than even he realises. New research shows not just that there has been an overall decline in support for redistribution of wealth through the tax and benefits system, but that we may be witnessing a generational shift in attitudes. Younger generations are less supportive of redistribution than their parents.

The overall decline in support for redistribution is relatively well understood. The percentage of the population agreeing with the statement, "the government should spend more money on welfare benefits for the poor, even if it leads to higher taxes," peaked in 1989 and has been on a broad, downward trajectory ever since. More people disagreed than agreed with the statement for the first time in 2007.

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But it is the second, generational, aspect that poses perhaps the most profound, long-term questions about Britain’s welfare settlement. Not only are younger generations less supportive of redistribution than older ones, but attitudes appear to remain steady within cohorts over time. There is little sign of a "lifecycle effect", in which our attitudes become more like those of our parents as we grow older. The implication is that the declining public support for redistributive policies may not be cyclical but rather a glimpse of the future.

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These are the initial findings of an ongoing study of attitudes towards welfare. Should this generational shift be replicated across the welfare state – with, for example, greater scepticism towards public pensions and elderly care – the implications could be seismic. Redistributive policies in particular and welfare state in general, require buy-in from significant proportions of society to remain sustainable. Changes in attitudes are therefore at least as important as demographic and financial pressures – not least because they will shape our collective response to them.

In the short-term the government has guaranteed a "triple lock" to protect the generosity of pensions; in the medium term a "triple block" of austerity, ageing and attitudes could force us to reconsider our current models of provision. In such a scenario, policymakers would have no option but to face up to some big questions. What has caused this fragmentation of support between the generations? Is it linked to people’s own experiences of the welfare state, or to wider social currents that policy has far less purchase on? Can it be reversed? If not, what are the policy responses that are consistent both with changing attitudes and long-standing policy commitments?

"The social democratic project is not just about spending more money" Miliband recently insisted. "We have surely learnt that it is not enough merely to keep funding more and more generous tax credits", urged David Cameron before the last election. Governments cannot depend solely on "the power of the central state to shift money around", argued Nick Clegg in the same year. Miliband, Clegg and Cameron had all better hope they are right. Two "A"s – austerity and ageing – already cast a long shadow over social welfare policy. We may be seeing the emergence of a third equally significant pressure: attitudes.

Pensioners in Blackpool. Photograph: Getty Images

Bobby Duffy is managing director of the Ipsos MORI social research institute and Duncan O’Leary is deputy director of Demos.

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation