Brexit defeat for millennials risks being compounded by huge tax and benefit transfer from young to old

RF says repairing generational divide a crucial task for new PM as it announces new Intergenerational Commission

The next Prime Minister must repair the stark intergenerational divide exposed by the EU referendum result, but the task will be made harder by tax and benefit plans they will inherit that are set to redistribute billions from young to old over the remainder of the parliament.

This is according to new Resolution Foundation analysis published today (Sunday) to announce a new Intergenerational Commission that seeks to repair the social contract between generations. This contract has been further fractured by the referendum result in which almost three quarters of voters aged under 25 voted to remain in the EU.

The Foundation warns that while repairing the strained social contract between generations is likely to generate less noise than the forthcoming EU negotiations, it is a hugely pressing task for the new Prime Minister.

The Foundation’s new ‘intergenerational analysis’ breaks down the impact of tax and welfare changes planned for this parliament by age. It shows that people in their 30s will experience the biggest losses of any age group, losing an average of £220 a year by 2020. In contrast, people in their 60s are set to be the largest beneficiaries, gaining an average of £170 a year.

The analysis shows that 45 is the age at which people on average move from losing to gaining from forthcoming tax and benefit polices in this parliament. The Foundation notes the irony that this is the same age at which people tipped from voting remain to leave.

These intergenerational differences are starkest in planned welfare changes, including the freeze in working age benefits and the reduced generosity of Universal Credit, which fall most heavily on those in their 30s. The average benefit losses experienced by those in their 30s is £480 a year – 16 times greater than the losses facing those in their 60s.

The analysis shows that the next Prime Minister will inherit planned tax and benefits changes representing a huge redistribution from young to old. Millennials are set to lose a total of £1.7bn while the baby boomers gain around £1.2bn by 2020. Some of these changes are due to come in as soon as April 2017.

This state transfer from young to old comes on top of a wider pay squeeze across Britain in which the typical earnings of those in their 20s and 30s have been squeezed three times as much as those aged 60 and over.

The Foundation says these policies are symptomatic of a wider failure of successive governments to consider the long-term implications of policies for different generations. It adds that politicians should recognise that far from being a generational war, it is often older people who are most worried about the fate of their children and grandchildren.

The Foundation also highlights the long and sustained lack of house building as another key policy failure. This has left younger generations today unable to get on the housing ladder, facing housing costs that are dragging down their living standards, and making them more likely to be reliant on the state for support in old age.

It warns that the short-termism of policy making means government is ill-equipped to deal with issues of intergenerational fairness. In order to improve understanding of these issues, the Resolution Foundation has brought together leaders from business, academia and policy-making to set up a new flagship ‘Intergenerational Commission’ that will be formally launched this month.

The Commission’s members are:  Vidhya Alakeson (Power to Change), Dame Kate Barker (ex-Bank of England), Torsten Bell (Resolution Foundation), Carolyn Fairbairn (CBI), Lord Geoffrey Filkin (Centre for Ageing Better), Sir John Hills (LSE), Paul Johnson (IFS), Sarah O’Connor (Financial Times), Frances O’Grady (TUC), Ben Page (Ipsos MORI),  David Willetts (Commission chair and Resolution Foundation) and Nigel Wilson (Legal & General).

David Willetts, Executive Chair of the Resolution Foundation and Chair of the Intergenerational Commission, said:

“Britain is bound together by a social contract based on mutual support between generations.

“But these economic and cultural ties are under severe strain, and were brutally exposed last week as young and old took different sides on the EU referendum vote. The new Prime Minister will need to prioritise the pressing task of repairing our divided nation.

“The Intergenerational Commission I’m chairing will bring together some of the best minds in Britain to better understand how policy impacts on different generations. It will encourage future governments to avoid repeating the mistakes of past ones, who have particularly failed to support today’s younger generation.”

Torsten Bell, Director of the Resolution Foundation, said:

“Questions of intergenerational fairness are moving to centre stage, representing a new form of 21^st century inequality. It’s time they were better understood and answered.

“From the catastrophic failure to build new homes, to inadequate care provision for older generations, all too often the short-termism of public policy means we fail to properly address these issues.

“And too often we simply ignore big intergenerational impacts of policy. The new Prime Minister will shortly inherit tax and benefit policies which redistribute billions from young to old in the coming years. This risks compounding both the living standards squeeze that has hit millennials the hardest in recent years and their feeling of disappointment at the referendum result.”

Notes to Editors

• According to Lord Ashcroft’s analysis of the referendum results, 73 per cent of those aged 18-24 voted to remain the EU, the highest of any age group. The likelihood of voting to remain falls with age from 62 per cent for those 25 to 34, 52 per cent for those 35 to 44, 44 per cent for those aged 45-54, 43 per cent for those aged 55-64 and 4o per cent for those aged 65+.
• Resolution Foundation analysis shows that between 2009 and 2015, the typical real hourly earnings of employees in their 20s fell by 12 per cent. This compares to a squeeze of 11.3 per cent for workers in their 30s, 8 per cent for workers in their 40s, 6.6 per cent for those in their 50s and 3.7 per cent for employees aged 60 and over.
• The Commission will be officially launched at an event with David Willetts, Frances O’Grady, Carolyn Fairbairn and Ben Page on 18 July at the Skyloft in Millbank. A major new report on intergenerational fairness will be published alongside the launch.
• The tax cuts modelled in the analysis include the Conservative Party Manifesto commitments to a £12,500 Personal Tax Allowance and £50,000 Higher Rate Threshold (compared to a scenario in which both rise in line with CPI inflation from their 2016-17 values). The benefit cuts include freezes to the value of various working age benefits and cuts to Universal Credit. We assume that half the UC population are new or changed claims and half benefit from transitional protection at this point. This is compared to a scenario in which UC cuts are reversed and benefits rise in line with CPI inflation from their 2016-17 values.