OK boomer, you’re more generous than we thought
In his first Conservative Party Conference speech as Prime Minister in 1991, Sir John Major pledged to create a future Britain where wealth will flow for generations. “We don’t see each generation beginning anew, cutting off the past and ignoring the future,” he said. More than 30 years later, Major can take some satisfaction from his success.
In the latest work on Generational Wealth Accounts, Professor James Sefton of Imperial College London estimates that £100 billion a year flows from generation to generation in the form of legacies. That is more than 4 percent of national income. At least another £11bn a year comes from lifetime gifts from parents to children. Sefton estimates that the present value of these transfers is equal to the total value of the UK housing stock.
Some older Britons may be insensitive to the difficulties many younger people are having with the high cost of housing and other expenses, earning an ‘OK boom’ deprecation. But as a generation, they don’t waste their wealth on fast cars and cruises. Sefton says the data shows, “The older generations care and they pass on a significant amount.”
Private redistribution between the generations does not stop here. Unpaid childcare is worth £132 billion a year. And although official estimates are a little dated, they suggest that unpaid social care for sick or elderly adults is worth £57bn a year. Overall, this ‘private welfare’ of almost £300bn a year is more than the public welfare bill for pensions and other social security of £261bn in 2022-23. No one should think of the State as the sole provider of a social safety net in the UK or anywhere else.
Society would be far worse off without private welfare, although it has a bad reputation for paying for privilege and undermining equality of opportunity. And there is no doubt that there is a grain of truth in these allegations. But imagine how much more pressure would be placed on public services if families didn’t look after each other, support the education system, and provide financial lifelines.
Private welfare is also very popular, so well-meaning proposals to tax assets and inheritance much more heavily in order to increase equal opportunities fizzle out in public. In a detailed examination of public attitudes, Oxford University professor Ben Ansell finds that wealth and inheritance taxes are extremely unpopular with voters across the political spectrum.
People see wealth as largely earned through taxed income from virtuous savers. They don’t think it should be double taxed. “There’s a moral logic to getting rich that’s deeply ingrained in the way people think about the world,” says Ansell. With such entrenched public attitudes, anything more than optimizing wealth and inheritance taxes is not an attractive option for politicians seeking electoral success.
This means that we should stop looking at the rise in personal wealth as a magical source of income to solve societal problems and instead focus on what else we can do to combat the lack of social mobility – the main disadvantage of wealth, that cascades down generations.
That would mean, for example, that governments redouble their efforts to increase housing supply to limit rental costs for those who can’t access Mom and Dad’s bank. Universities need to continue successful programs to improve access for more disadvantaged students. And it provides justification for diversity programs in the workplace that increase opportunities for people from diverse backgrounds.
Public order is always more chaotic than textbooks suggest. Private welfare is great, generally virtuous and popular. Wealth and inheritance taxes bring little and are unpopular. So if we want to find ways to improve the fortunes of younger generations, we should stop treating boomer wealth as a magic pot to be taxed and instead find more imaginative, practical, and popular strategies.
