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What is really causing wealth inequality

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pamphlet, pensioners, young people, what's really causing wealth inequality?Challenging the myth that it is older people hoarding all their wealth.

There has been growing concern in recent UK political debate about the economic outlook and lifetime prospects of younger generations.

Particular attention has focused on:

unprecedented levels of graduate debt following the increase in the cap on undergraduate tuition fees in England to £9,000 per year;

house price inflation and ensuing difficulties for younger households in becoming owner-occupiers; and

high levels of youth unemployment and fewer good quality job opportunities, along with the long-term effect of these trends on young people’s earnings.

An increasing number of stakeholders have argued that today’s younger cohorts are likely to be the first generation that will be poorer than their parents over their lifetime.

Amid such concerns, there has been growing focus in public policy debate on the contrasting positions of the ‘young’ versus the ‘old’.

Commentators have argued that given their wealth, public spending on pensioners should be cut to fund more spending on young people and that transferring public spending from the old to the young would be an effective way of both lifting young people’s long-term economic outlook to the level of their parents, and of improving intergenerational fairness;

While there is no doubt that young people have seen significant falls in living standards, a new Touchstone pamphlet challenges the myth that these are the result of older people hoarding all the wealth.

Drawing on new analysis, the pamphlet argues that young people’s deteriorating prospects are a consequence of growing wealth inequalities across UK society.

It also shows that tackling these effectively will require a far more ambitious and progressive strategy than advocates of cutting pensioner benefits admit.

This discussion paper uses analysis of household wealth – in particular, new research undertaken by the University of Bristol using the UK Wealth and Assets Survey (WAS) – to explore these arguments. ​

For, as Frances O’Grady, general secretary of the TUC, wrote in the introduction, while public spending cuts have hit young people hard, many of the poorest pensioners have lost out too, particularly as services including social care have been pared back.

‘It is also’, she points out, ‘those of working age, rather than pensioners, who are currently most likely to be wealthy, with a very large proportion of our national wealth held by a very few households, regardless of age.

‘Young or old, only a lucky elite benefit from inequality while life gets tougher for everyone else.’

The wealthiest households in the population, the research found, are mostly of working age.

It is also found that tenure, geography and earnings are all strong predictors of being wealthy, raising questions both around why age has come to signify wealth in policy debate, and why pensioners should be the target of fiscal choices around tax and spending to increase support for young people.

This report has found that UK pensioner households do not comprise the majority of the wealthiest households across the population, and it is unclear why cuts to age-related public spending should be the focus of debate.

Indeed, it says, were public spending transfers to occur from pensioners to younger cohorts, it is likely that such transfers would have a very marginal impact on the economic outlook of younger households, and be of little relevance to ‘intergenerational fairness’.

There is a risk, it says, that such debates distract the public and policymakers from those potential policy interventions that are required to improve the long-term economic outlook of younger cohorts.

In this sense, recent debate on intergenerational fairness and age-related spending has been a disservice to younger cohorts, as it has diverted policymakers from broader structural trends and changes, and those policy options that would have a significant impact on the wealth accumulation of younger households.

O’Grady again: ‘So solutions to young people’s problems will not be found, by example, by reducing winter fuel allowances for pensioners.

‘Instead, improving the new generation’s chances requires profound changes in how we structure our economy and distribute wealth.

‘Young people have not been held back by today’s pensioners but by poor political choices that have polarised opportunities, income and wealth.

‘The last government shattered the promise of each generation that our children should have a better life than we did,’ she continued, ‘This pamphlet is designed to kickstart a new debate about how we put that right.’

To read the pamphlet, click here.

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