[
Angus Hanton believes he and his contemporaries “hit the financial jackpot,” and that’s why the self-confessed baby boomer is fighting to level the playing field for the young.
Back in 2011, the 64-year-old economist helped to set up the Intergenerational Foundation (IF), a charity and think-tank – or “think and do tank” in the words of his fellow co-founder Liz Emerson – to help protect and fight for the interests of future generations.
“Let’s go chronologically,” he says, drawing up a timeline of the advantages those of his age cohort have had, compared to today’s young people. “Their university education was free, almost any job they walked into had a generous final salary pension scheme and then in the 80s many bought a house which was very cheap, and then went up in value.”
“They all thought they were very clever,” he says. “But it was a cohort effect – everyone’s house was going up, it wasn’t the wisdom of their choice. Then, the increase in value of that house was tax free if they sold and crystallised it.”
So why did this happen to people his age? And why aren’t things the same now? Mr Hanton says there are two possible answers.
“You can either say they’ve been fortunate – that’s what many of them say. The other way to look at it is they made their own luck. By that, I mean they elected politicians that consistently protected and enhanced their position,” he says.
His comments are unlikely to make him popular with his fellow “boomers”, but he says it’s not about attacking them, or making them feel guilty.
“It’s about getting them to feel annoyed that governments have not been fair between generations, and encouraging them to vote and act in the interests of their children and grandchildren,” he says.
Hanton and four others set-up the IF 13 years ago at a time when intergenerational fairness was not spoken about as much by politicians as it is now.
He wrote an article “Have we robbed our children?” which was shared among economists, and the idea of looking at financial disparity across age cohorts spread from there.
“We noticed a couple of things that seemed unfair on young people. Then when we looked further, we uncovered more. Every rock we over turned we discovered even more,” he says.
Tax system hits the young hard
For Hanton, one key issue that hits today’s young people is the way tax works in the UK.
“Earned income is taxed so high and wealth and unearned income so much lower,” he says.
The basic rate of income tax is 20 per cent, national insurance – effectively another income tax but only paid by those under 66 – is 8 per cent – and student loan contributions are 9 per cent, which means a young person who has been to university but is earning an average salary of £35,000, will be paying effectively 37p of every further £1 earned in effective tax. Those with two loans, such as for a Masters, will be paying even more.
“Your rent might be £12,000 a year – or more – so you’re paying all of the tax-free allowance you get to pay your rent. So you’re working very hard and despite having a good salary you really have very little chance of saving. Your prospects hinge on getting promoted, and even then you’ll pay even more tax,” he explains.
He contrasts this with those who make income from property. Standard rate payers, which includes the majority of taxpayers over the age of 65, only pay 18 per cent on property gains and 20 per cent on rental income.
This is why Hanton says the number one change he would make if he could to address intergenerational unfairness would be changes to capital gains tax (CGT) – the tax paid on property sales, shares and other assets.
Currently, you don’t pay the tax on the sale of your primary residence, which Hanton says should change.
“I think a phased introduction of CGT on housing gains for primary residences would be key. I crucially say phased, because if you said in five years’ time, you’re going to be paying CGT on the gain in your housing, people would have time to start thinking – but not much too much time.
“People would start planning and developers would start building things that people could downsize into. I think this could create a revolution in housing to the benefit of all,” he says.
He says the ideal would be an exemption if you were selling to trade-up – which would mean those young couples going from flats to houses would not pay.
This should be coupled with an exemption to stamp duty for those downsizing he says, and that a future Government should also consider creating an extra tax-free allowance – perhaps of £5,000 – for those that rent.
He argues that a future Government should reduce the cost of university education – funding it through general taxation instead – and should also make changes to pensions too.
Pension changes needed
In terms of pension changes, Hanton also has some suggestions for the Government.
The triple lock – which ensures the state pension rises by the highest of earnings growth, inflation or 2.5 per cent – should go and be replaced with an inflation-only mechanism.
We should also look at means-testing the state pension “at the top level,” he believes.
“I’m not saying it should be reduced to a safety net, but it shouldn’t just be extra income for those who are very, very wealthy,” he says.
He also has concerns about public sector pensions. Unlike most people’s pensions, which are effectively saving pots, most public sector roles come with “defined benefit” pensions that pay a set income each year in retirement.
These were adjusted in 2015 and are now a little less generous, though they’re still considered by some to be gold-plated, when compared to most retirement saving schemes.
Hanton believes we need to shift from these being unfunded – which the majority are – to funded. This means money would be paid into a fund, which would then pay out to employees when they retire. At the moment, pensions today are paid from employee’s payments today.
“Baby boomers in particular, as a generation have made promises to themselves, which are unfunded and are paid for by younger generations. As a principle we’ve got to stop that,” he says.
‘British reserve’ not helping
Not all changes need to be policy-related though. Some, he says, are cultural.
“There are some British things that get in the way of this kind of discussion. Younger people might not tell their parents or grandparents how much they earn, how much their rent is or how much student loan debt they’re paying off. There’s a British reserve about this stuff,” he says.
“You might get a granny who gives her grandson £50 at Christmas and thinks she’s helping him out. I really think every grandparent should be told what they’re grandchild earns and what their debts are. Some aren’t in a position to help, but many are.
“Maybe those who are wondering whether to go on a Caribbean cruise again should be aware that perhaps their grandchild is struggling to pay their rent. That lack of awareness perhaps isn’t helpful. That’s why our approach was to say well let’s do some studies,” he explains.
A key piece of work by the IF was their “pensioner millionaire” research. It initially found that in 2008/10, there were 846,000 over-65s living in households with over £1m in housing and pension assets. A decade later, 3,137,000 over-65s were.
“You might get people who say, ‘oh well owning a million pound house is not that much in this area’ but to a young person, those people are going to look extremely wealthy,” he says.
Does the future look bright? Maybe
IF has now been campaigning on intergenerational fairness for more than a decade, but is more awareness of the issues at hand likely to actually result in change for those of younger generations?
Hanton says at the moment the status quo is very much in favour of older people, so it suits them to have an “inactive government.”
He says the months after the next general election – and a likely change of Government – will be pivotal.
“It’s an exciting moment, but on the other hand, it’s also where we know you could have the disappointments. There’s going to be an enormous bunfight after that likely election victory over what Labour’s policy will be.
“So I think we’re on the cusp of change and it’s an exciting moment,” he adds.
But he says persuading younger voters of that, could be a tricky task in of itself.
“I had a meeting with the Electoral Commission recently, and one thing that came up was how younger people often bring their own pens to the polling station. Older people don’t. Their conclusion was that younger people have learnt not to trust systems.
“There’s often a message to young people – your time will come. I’ve seen it with my own children. You let one have a mobile phone and say to the younger one, you can have one when you’re 10. I think younger people have been told, get a good degree a good job and your time will come.”
So far, Hanton says, this principle has not worked for the country’s young, and they’d need heavy persuading to make them believe it.
