Realign Economic Incentives to Improve Young Britons' Prospects

Drastic reforms to planning, tax welfare and education are needed to reduce intergenerational inequality and boost economic growth, says think-tank

• An increasingly large divide has opened up in British society between generations in which the young lose out, while the elderly benefit;

• Intergenerational inequality is not just an issue of fairness between the young and the elderly — the ways in which it is expressed are a drag anchor on the productivity and economic growth that Britain desperately needs;

• Drastic reforms to planning, tax, welfare and education are needed to boost productivity, wages and prosperity, and lower taxes from a postwar high.

A new report, Boomer and Bust: Realigning Incentives to Reduce Intergenerational Inequality, from the Adam Smith Institute (ASI), draws attention to the increasingly large divide between the generations, in which the young lose out, while the elderly benefit. This divide is reflected across diverse policy areas with profound implications for society, covering access to asset wealth and housing affordability, benefit and pension spending, the national debt, Covid-19 lockdowns, and the cost of education. 

The report’s authors highlight that many of the root causes of intergenerational inequality are intimately linked to Britain’s lacklustre productivity growth. The incentive structures that drive this inequality have led to an unacceptably low standard of living and have forced the country to pay higher taxes for worsening public services. These fundamental problems will only be exacerbated as Britain’s population ages. 

While it is not the case that the elderly have been purposefully robbing the young of their future, they have benefited from the unintended consequences of our current political incentive structures. The answer to some of these challenges does not lie in intergenerational conflict, but in policy changes that create mutually beneficial outcomes. 

As part of the paper’s research, public opinion polling of Brits was commissioned, aiming to gauge which changes would be supported and politically viable. The polling found that:

• The majority of people (52%) support more development in their area, at least in principle. This has increased from 38% in 2021.

• There is an overwhelming acceptance (84%) that it is much harder today for young people to buy a home than it was for their parents. 

• There is significant support (70%) for unfreezing income tax thresholds. This suggests that the income tax freeze until 27/28 deserves its moniker as a ‘stealth tax.’ The vast majority of people do not support the policy when it is made clear how it works and how it affects them.

• There is very strong support (66%) for school leavers, who do not go onto university, to get access to a similarly sized loan, to help with professional development and setting themselves up for a career without having to go to university (i.e. to buy tools, tech, courses or a vehicle).

• There is majority support (50%) for a specific proposal of up to £6,000 per annum for three years being loaned to school leavers who do not go on to university. 

The paper recommends the following:

1. See through Street Votes, which would allow local residents to set design rules and financially benefit from densification;

2. Replace the triple lock on pensions with a smoothed earning link;

3. Unfreeze income tax thresholds;

4. Abolish stamp duty;

5. Remove the bias towards the university system by offering personal development loans to school leavers who do not attend university of £6,000 per annum over three years.

John Macdonald, Director of Strategy at the Adam Smith Institute and report co-author said:

“The country’s political incentive structures are in urgent need of reform. Politicians too often shy away from taking this challenge on, certain it will lose them votes, and are willing to kick the can down the road for the sake of electoral expediency. 

“This kind of thinking is not only holding the country back, but is politically disastrous in the long term. It is not just that younger generations are crying out for new homes, better infrastructure, more opportunities and higher wages. Continuing to fail in any of these areas will have immense consequences for the entire country — including the current beneficiaries of intergenerational inequality. Without a growing economy and a productive working population, we will be forced into paying ever higher taxes for decaying public services. The best time for these reforms was yesterday. The next best time is today.”

METHODOLOGY:

Research Lead

Polling was conducted by Dr Michael Turner, Director at Freshwater Strategy, and Fellow of the Adam Smith Institute.

Fieldwork Dates

21-25 September 2022.

Data Collection Method

The survey was conducted online. 

Population Sampled

Adult residents living in Great Britain.

Sample Size

n = 1,001

Weighting

Data are weighted to match the profile of the adult population living in Great Britain. 

Margin of Error

The maximum margin of error for this poll is +/- 3.6% when analysing topline results.

-ENDS- 

Notes to editors:  

For further comments or to arrange an interview, contact Emily Fielder, emily@adamsmith.org | 0758 477 8207.

John Macdonald is Director of Strategy at the Adam Smith Institute.

James Dickson is an independent researcher and commentator and author of the Himbonomics substack newsletter.

Dr Michael Turner is Director at Freshwater Strategy and a Fellow at the Adam Smith Institute.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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