Why it makes sense to give millennials £10,000

We need to lift the burden of risk that we are loading onto young people.

NS

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Every politician should ask what it feels like to grow up in Britain today. The mood and outlook of young adults is a bellwether for the new frontiers of culture, the growth prospects of the economy and the tenor of politics.

So, what is the mood among young adults in Britain? There’s lots to be enthusiastic about. Technology brings new opportunities and, although there is still more to do, minority groups have rights and freedoms enshrined in law that were previously neglected.

But there is a cloud hanging over this optimism, and it concerns the fundamental drivers of living standards: jobs, houses and pensions. The Intergenerational Commission’s two-year study – the final report of which launches today – has set out how the millennial generation is doing no better than preceding ones in household incomes and asset accumulation. This represents a stark break from the generation-on-generation living standards improvements that Britain became used to in the late 20th century.

Any politician who asks the question of what it feels like to be young should also acknowledge that as well as the stagnating standard of living, there is something else: risk. Millennials are more likely to be in insecure self-employment, or on a zero-hours or agency contract, where prospects for pay are far from assured. Automatic enrolment means that young workers are being nudged into the habit of pension saving, but the defined contribution schemes they are saving into leave them exposed to investment risks that the old defined benefit schemes protected against. 

And while more and more of their income is spent on housing, that housing is likely to be small, and in Britain’s woefully insecure private rented sector. Such insecurity may be bearable when finding one’s feet, but for the 1.8 million families with children renting privately, it’s not.

Millennials are taking on more risk than previous generations, and the psychological impact of this may be just as important as a straight financial reckoning. Risks affect your appetite for taking chances. Millennials are less likely to move jobs or move regions for work than predecessors – steps that are typically the route to big pay improvements – evidence, perhaps, of this risk-aversion.

For these reasons, the Intergenerational Commission’s policy recommendations aim to reduce risk. If housing risk is to be reduced, we need a light-touch rent stabilisation and an end to short-term fixed tenancies in the private rented sector. Those not holding permanent jobs need more guarantees of their working hours. And when it comes to pensions, we should work towards a middle-ground between defined contribution and defined benefit pensions, that will more fairly share the risk between firms and individuals.

The Commission also recognises that families have traditionally coped with risks by falling back on their assets, whether that is savings or tapping into the value of their homes. Britain’s coming inheritance boom will hand such a base down to millennials. However, it will be too late for many, while others will miss out altogether. That means we need to offer a minimum level of security to the young, no matter their background.

The Commission recommends a £10,000 Citizen’s Inheritance for all young people, funded by abolishing an unpopular and loophole-riddled inheritance tax and replacing it with a tax on recipients with a lower rate and fewer exemptions. This isn’t about fuelling spending sprees: use of the Citizen’s Inheritance would be restricted to where it is most needed – housing, training, pensions and starting a business. It effectively would more than double the wealth of nearly two-thirds of those in their late 20s if handed down today.

It’s not just the young we should be concerned about, of course. The Commission’s recommendations also focus on reducing the risks that our broken social care system poses to older people, and the risk of an under-funded NHS as they age if we don’t come up with a fair way to pay for it.

Some will have different solutions to the challenges younger generations are facing. Others will say that the steps the Commission sets out are too politically difficult. But the risk here is that we move from failing to fully understand the generational problem to letting fatalism get in the way of doing something about it. The state has faced up to generational challenges before – introducing the state pension at the beginning of the 20th century and building homes for the children of the baby boom in the middle of it – and it can do so again. Politicians looking to tap into today’s risky mood need to begin the task of renewing the generational contract to offer opportunity to the young and security for all. The Intergenerational Commission provides a blueprint as to how.

Laura Gardiner is the principal researcher at the Resolution Foundation.