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

Published on Incomes and Inequality, Intergenerational Commission

A key question for any politician is to ask is 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, including the opportunities that technology presents and, although there is still more to do, rights and freedoms for many minority groups that were unthinkable for their predecessors.

But the cloud hanging over optimism 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.

Crucially, any politician looking to get to grips with what all this feels like for the young must also acknowledge the additional sting to material living standards stagnation: 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 into pension saving may have done an admirable job at re-starting the savings habit among the young, but the ‘defined contribution’ schemes they are saving into leave them exposed to investment risks that the old ‘defined benefit’ schemes insulate against.

And while housing costs are taking up an ever greater share of incomes, that money is much more likely to be spent on smaller homes 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.

We need to acknowledge that the psychological impact of this transfer of risk may be just as important as a straight financial reckoning of young adults’ situation. Risks can compound and affect people’s appetite for taking chances. The fact that millennials have been less likely to move jobs or move regions for work than predecessors – steps that are typically the route to big pay improvements – is evidence of this risk-aversion.

For these reasons, the objective of risk-reduction runs through the policy recommendations put forward by the Intergenerational Commission today. Indeterminate private rented tenancies with light-touch rent stabilisation represent the assault on Britain’s housing crisis that is needed to reduce housing risk. More guarantees over working hours for those outside of permanent jobs can provide a basis for better career progression. And working towards a middle-ground between defined contribution and defined benefit pensions can precipitate a fairer sharing of risk between firms and individuals.

The Commission has also recognised that a key way that families have traditionally coped with risks is via a base of assets. Britain’s coming inheritance boom will hand such a base down to millennials, although 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 a fewer exemptions. This isn’t about fuelling spending sprees: its use would be restricted to where it is most needed – housing, training, pensions and starting a business. It effects would be transformational for many, more than doubling 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, and 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.

This blog was originally published on the New Statesman’s Staggers blog