Intergenerational Fairness in Government Policy

Lord Willetts Excerpts

Thursday 26th October 2017 Lords Chamber

[Lord Willetts (Con)]

My Lords, I congratulate the noble Baroness, Lady Smith of Newnham, on bringing this debate to the House today. It is a very important subject. I should perhaps declare my interest as a baby boomer, but I should also declare my interest as the executive chair of the Resolution Foundation, which is doing a lot of research on this subject. Indeed, I am chairing an intergenerational commission on this very topic which is graced by, among others, the noble Lord, Lord Filkin, as one of my fellow commissioners.

At the heart of this debate is a fundamental part of the social contract that holds a society together. By six to one, British people expect younger generations to be better off than they are. It is supposed to be part of the promise of a modern, liberal, capitalist society that successive generations will be more prosperous. However, we have now reached the stage in which by two to one, citizens in this country fear that the future generations will not be better off. Something that should be the promise of a modern, liberal society is not being delivered.

The noble Baroness took this as an international challenge, and she is right to look at it internationally. Indeed, I would say that the debate on climate change has led to some of the most sophisticated investigations of how we should properly value the future and value the interests of future generations, and perhaps even value the interests of generations as yet unborn. But I hope she will permit me to focus on the vivid evidence of what is going wrong in this country.

The most powerful evidence of all is on housing. The noble Baroness referred to the 300,000 homes a year that were built during the 1950s and 1960s, whereas now, under successive parties in government, we struggle to build half that—150,000 houses. Someone aged 30 is half as likely now to be a home owner as they were a generation ago. This is not because there has been a fundamental shift in popular attitudes away from home ownership—far from it: 60% of renters aged 18 to 40 say they would like to own a home. This is an aspiration that we on these Benches strongly support, and the fact that for so many young people it is an aspiration they are no longer able to fulfil must be something that we would wish to tackle. I hope we will hear from the Minister when he replies to this debate about what more can be done on that.

As well as helping people into home ownership, there is also the issue of housing costs, where rents which used to take 8% of the income of boomers, when we were younger, now take up 25% of the income of the younger generation today. That is one reason why they are consuming less than previous generations. Their discretionary income has fallen; many of them are renting, sometimes in scandalously poor-quality accommodation with very weak rights as tenants. It would be great to see more protection there as well.

I personally think that the worries about housing costs lie behind some of the anxieties around higher education and the fees and loan system which I myself as a Minister was involved in. A lot of people fear that somehow the so-called graduate debt is a barrier to getting started in the housing market, but fortunately it is not a real debt, like an overdraft or a credit card debt or a mortgage. In my conversations with the Council of Mortgage Lenders, it fully understood that this was not like a commercial loan; it was instead a fixed outgoing that would be taken into account as an expenditure item rather than as a liability.

If anything, the real challenge on education is that the rate of improvement in human capital—the rate of investment, and the rate at which we are raising our skills in this country—is, as a recent OECD report has shown, shockingly low. That is why I want us to continue to see more people going into higher education, and I want that higher education properly resourced. But, of course, it is also very important that we invest in vocational and technical routes outside higher education.

As well as housing and the need to invest in skills, there is also the challenge of jobs and wages—and again, the evidence is dispiriting. The wages of someone in their late twenties today are lower than they were for someone in their late twenties 10 or 15 years ago. When we tried to understand why this is happening, we found that one reason is the decline in the rate of job mobility—people not moving jobs as frequently as they used to. That seems to be why younger generations are finding it hard to see their living standards rise.

This all feeds through into government policy, and it is very important that government policy properly take into account the challenge of intergenerational equity. I am afraid that when we look at tax and benefits, the picture is again very dispiriting. The freeze in working-age benefits, combined with other tax changes, means that, in the next few years, the combined effect of all these policy changes is to reduce the incomes of millennials born between 1980 and 2000 by about £475 a year; to reduce the incomes of people born in the 1970s by £390 a year; but to reduce the incomes of boomers by £10 a year.

I do not believe in generational warfare. I do believe that different generations care about each other. Grandparents want to see their children and grandchildren living well, and grandchildren expect their grandparents’ pensions to be properly looked after. So I thought that a lot of what my noble friend Lord Lamont said in that very spirited article in the Daily Mail is correct. I do not want to see generational warfare. But, especially as a former Chancellor, he will recognise that when resources are limited, the question is: what is the equitable distribution of those resources? To have such sustained and continuing increases in state expenditure on pension benefits is a very striking contrast to the freeze in the value of all benefits for working-age families. There are other peculiarities of the system as well: national insurance contributions for employees not collected from people of pension age.

So I think there is not just an intergenerational contract—there is indeed genuine interest and concern by generations in each other. Successive Governments, represented by three political parties in this Chamber, just have not attached enough weight to this issue of different generations. We are aware of class differences. We are aware of people from disadvantaged backgrounds. We are aware of ethnic differences. We have not been so aware of the differences between the treatment of different generations, and the time has now come to put that principle of equity at the heart of government policy-making.