AIQ speaks to the Conservative party politician and peer about his research into intergenerational inequality.
Conservative party politician and peer David Willetts published The Pinch in 2010. Subtitled ‘how the baby boomers took their children’s future – and why they should give it back’, the book helped frame the debate about intergenerational inequality in Britain.
It is Lord Willetts’s contention that the boomers “concentrated wealth in the hands of their own generation” and introduced “new barriers to the spread of opportunity and ownership” among younger generations.
Nearly a decade on and intergenerational inequality has worsened, he says. Policies designed to spur growth in the wake of the financial crisis – such as quantitative easing – exacerbated the inequity identified in The Pinch by boosting the wealth of older generations. And a widening chasm in wealth and income between young and old has also been observed in other nations, particularly the US, which has been ranked worst among 29 advanced economies in imposing unfair burdens on future generations.1
I’m not a pessimist. I think people do worry about intergenerational fairness and my book was part of a wider wake-up call.
As chair of the Intergenerational Commission at The Resolution Foundation, Lord Willetts is exploring how these issues might be addressed; the Commission’s final report will be published in the summer. Initial findings suggest young people are continuing to suffer disproportionately in an economic landscape marked by rising inflation and sluggish growth, but Lord Willetts insists he is “not a pessimist”. In this interview, he argues growing awareness of the problem will pave the way for a solution.
How has intergenerational inequality developed since you published The Pinch?
The evidence has become even stronger, in both assets and income. The wages of someone in their 20s now are in real terms less than the wages of someone in their 20s 10 or 15 years ago. That’s the labour market issue. On the welfare state, we’ve got a triple lock, which has meant that pensioner benefits have risen by a minimum of 2.5 per cent while benefits for working age families have been frozen in cash terms. So there has been a shift in the relative generosity of benefits and pensions relative to families. The house price boom, partly fuelled by QE, partly fuelled by planning restrictions, has benefited the owners, who tend to be baby boomers. This made it harder for younger people to get a start on the housing ladder.
[It’s the] other big asset, pensions, where there have been the most encouraging developments. Although the younger generation don’t have anything like the final-salary pension scheme that many boomers enjoy, the ‘NEST’ [an auto-enrolment scheme] is having an effect and is spreading a basic form of pension saving to the younger generation.
You served as minister of state for universities and science in the coalition government. How did the policies the government introduced to deal with the financial crisis affect intergenerational inequality?
Although QE was necessary in the circumstances, it had the side effect of boosting the wealth of people who have got assets – so it boosted the wealth of the boomers relative to younger generations. The good news on the labour market since the crash has been high levels of employment; the bad news is there has been no increase in take-home pay – at best, pay is stuck back at the level it was pre-crash. You could have imagined a different response to the crash; you could have imagined, for example, that bond holders in banks had been required to take a much bigger hit, and of course that would have hit things like annuities.
What are the political effects of the decline in homeownership among young people?
We’ve now got people in their 30s and 40s who are renters – on a bigger scale than before – and renters have relatively few rights in the UK. So if you’ve got a kid at school and you have to move your tenancy, your kid has to move from one school to another. And that does impose strains on families.
There has also been a decline in class identity and class loyalty, which is something we’ve investigated at the Intergenerational Commission. Of course, if you’re moving around a lot as a renter, you’re less likely to vote, and indeed it’s harder to vote because you’re less likely to get on the electoral register. So there is some evidence [the younger generation] feel less attached to a local community and to political organisations because they haven’t been able to put down roots in the classic way of buying their own homes.
What are the implications of intergenerational inequality for social mobility?
What it can mean is younger people depend more on what they are going to inherit from their parents or grandparents, so the intergenerational exchange that survives is within the family. That in turn means that if you have the advantages of an affluent and well-educated family they can pass on those advantages to you more – so there is a link between intergenerational inequality and social mobility.
What can governments do to alleviate the pressures affecting young people?
The most important thing is to get more houses built, and that’s an area in which we have made progress. I’m not a pessimist. I think people do worry about intergenerational fairness and my book was part of a wider wake-up call.
Look at the shifts in attitudes: if you ask the question, ‘would you wish to see more housing built in your area?, the number of people agreeing to that proposition has doubled in the last five years: it’s gone from 26 per cent in 2010 to 54 per cent now. So there has been a shift in attitudes towards housebuilding and the government has gradually ratcheted up the policies to get more houses built. People do respond to an appeal to intergenerational equity.
Your latest book, A University Education, is a history of higher study. Rates of university attendance among millennials are higher than they were for previous generations – do you see this reflected in any generational traits or attitudes?
I think the younger generation are better educated, more hard working, they drink less, they smoke less, they are under pressure to do exams from a young age, and indiscretions on social media are going to stay with them for life. When I would go round universities, what I would find is that the students are not plotting Marxist revolution in Latin America, they are more likely to say they aren’t getting essays with comments back from their professors quickly enough. They are actually quite a serious minded group, because they think that if they don’t work hard they are facing a very tough, competitive world out there: in many ways they are.
1 This 2013 cross-national study looked at metrics such as public debt per child, the ratio of childhood poverty to elderly poverty and the elderly skew in social spending. See Paul Taylor, The Next America: Boomers, millennials, and the looming generational showdown, 2016.