In his first speech to the Conservative party conference as prime minister in 1991, Sir John Major pledged to create a future Britain with wealth cascading down the generations. “We do not see each generation starting out anew, with the past cut off and the future ignored,” 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 £100bn a year flows down the generations in the form of bequests. That is more than 4 per cent of national income. At least another £11bn a year comes from lifetime gifts from parents to children. Sefton estimates the net present value of these transfers is equivalent to the entire value of the UK’s housing stock.
Some older Brits might well be insensitive to the difficulties many younger people have with the high cost of housing and other expenses, earning themselves an “OK boomer” put-down. But as a generation, they are not frittering away their wealth on fast cars and cruises. Sefton says the data shows, “The older generations do care and they are passing down a significant amount”.
Private intergenerational redistribution does not stop there. Unpaid childcare is worth £132bn a year. And although official estimates are a little dated, they suggest that unpaid social care of sick or elderly adults is worth £57bn a year. In total, this “private welfare” of nearly £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 only provider of a social safety net in Britain or anywhere else.
Society would be much worse off without private welfare, although it has a bad reputation, with connotations of paying for privilege and undermining equal opportunities. And there is no doubt that there are elements of truth in these accusations. But just imagine how much more pressure there would be on public services without families caring for each other, helping the education system and providing financial lifelines.
Private welfare is also hugely popular, so much so that well-meaning suggestions of taxing wealth and inheritance much more heavily to increase equality of opportunity fall flat with the public. In a detailed examination of public attitudes, professor Ben Ansell of Oxford university finds wealth and inheritance taxes extremely unpopular among voters across the political spectrum.
People see wealth as largely earned from taxed income by virtuous savers. They do not think it should be taxed twice. “There is a moral logic to retaining wealth that is deeply embedded in the way people think about the world,” Ansell says. With such firmly entrenched public attitudes, anything more than tweaking wealth and inheritance taxes is not an attractive option for politicians seeking electoral success.
That means we should stop looking at the rise in private wealth as a magical source of revenue to solve society’s problems and instead focus on what else we can do to attack the lack of social mobility — the main downside of wealth cascading down the generations.
This would mean, for example, governments redoubling efforts to increase the supply of housing to limit rental costs for those without access to the bank of Mum and Dad. Universities must continue successful programmes to increase access for more disadvantaged students. And it provides a justification for workplace diversity schemes that increase opportunities for people from different backgrounds.
Public policy is always messier than textbooks suggest. Private welfare is large, generally virtuous and popular. Wealth and inheritance taxes raise little and are unpopular. So, when we want to find ways to improve the lot of younger generations, we should stop looking at the wealth of boomers as a magic pot to be taxed and find more imaginative, practical and popular policies instead.