David Willetts: My solution to the age time-bomb

Families are vital in transmittting capital from one generation to the next

It's been a week when the challenge of funding care for older people has been at the top of the agenda. My party has rightly attacked Labour's idea of a compulsory levy on people's estates.

We prefer instead an approach based on incentives for voluntary insurance. For example, we have proposed that people should be able to make a one-off up-front payment of about £8,000 at age 65 which would cover them if they need residential care later on.

Labour's idea touched a raw nerve in the same way that inheritance tax does. There are deep human instincts here which Gordon Brown does not appear to understand. At the heart of these is the desire to pass something on to future generations. That is why issues such as inheritance tax and death levies strike such a chord – people think this is money for their children or grandchildren. One estimate is that 30 per cent of American private wealth is for personal consumption and the rest for charitable purposes or bequests to the next generation.

This is part of a wider set of reciprocal obligations between the generations which I focus on in my book. I am not starry eyed about them – as every Victorian novel tells us, there can be a big dose of self-interest too. So the prospect of an inheritance may affect the behaviour of children. Research suggests that children of rich parents devote more time to them than children of poor parents. The crucial extra piece of evidence about the motives for this was that this did not apply to only children, who faced no competition for inheritance from siblings.

The classical tradition of sociology, from Durkheim to Parsons, assumed that family transfers, certainly beyond the nuclear household, would just wither away. The empirical evidence shows the opposite. Whether it is measured by time or by money, these ties between the generations still mean a lot. And grandparents in particular seem to be more important then ever. That is one reason why how we care for them and what happens to their inheritance matters so much.

The origins of their significance can be traced back into prehistory. Human progress surged forward about 50,000 years ago: for the first time we had a diversity of tools; we started fishing, cooking, drawing. Although homo sapiens had been around for 200,000 years or so, this is nothing less than the start of human culture.

What happened? The fossils left in the caves and encampments of our early ancestors are an important clue. They suggest that human development really took off when the ratio of old to young was transformed. The campsites of the Neanderthals and early homo sapiens yield up many more jawbones of under-15-year-olds than over-30-year-olds. But about 50,000 years ago that ratio shifts dramatically so that there are twice as many jawbones for over-30s as for under-15s. A modest improvement in life expectancy meant a big increase in the chances of three generations living together – from dying at 30 when your child is 15 with no grandchildren to surviving to 35 when your child is 20 and the grandchild is five. This is a massive change in society and is key to culture and civilisation. It gives a very different perspective than the dismal preoccupation with so-called dependency ratios which seems to dominate discussion today.

The parents might be busy hunting and gathering but the children could learn from the grandparents. They were transmitting a body of knowledge embodied in a culture across three generations. The ability to pass on what you have learned, as a tradition, is what makes human progress possible. And that is what grandparents did. Grandparents are the custodians of the contract between the generations today as well.

One survey asked parents of young children about who had helped with childcare in the past week. A quarter had been helped by a grandparent as against 10 per cent a friend or neighbour and 8 per cent a day nursery. Forty-five per cent of employed mothers had grandparents helping with childcare as against 37 per cent using formal providers. Estimates of the value of the childcare provided by grandparents range from £3.9bn to £50bn.

This tells us that the family is a vital vehicle for transmitting capital in all its different forms from one generation to the next. But it is not just the family which does this; so does private insurance and indeed the welfare state. There are distinct responsibilities for families and for government. If government tries to block the urge of families to do the best for their children and grandchildren then it risks public obloquy. But there are things we cannot do as parents but only as citizens. Indeed, I argue in my book that the boomers, roughly those born between 1945 and 1965, have turned out to be better parents than we are citizens. The evidence is that the boomers have devoted more time to our children than the previous generation did to us. We have engaged in massive investment in our own children and do not wish governments to stop it.

But there is an obligation to the next generation as a whole which cannot simply be discharged one by one – it is for all of us as citizens. Government needs to do a better job of taking on its own responsibilities rather than undermining the efforts of families. For a start, it must not impose its own heavy burdens on future generations. This week the Government sold several billion pounds' worth of debt which will mature in 2034 – the burden of interest on that debt will be on our children and grandchildren long after many of us have left the workplace.

It is not just the national debt. It is the cost of adjusting to climate change and securing energy for the future: my generation of boomers will have used more energy to sustain our lifestyle than generations before or after us. A third challenge is to improve educational opportunities for our children.

We can hope for a society that truly values this mutual dependence between the generations – with families, civil society and government each doing its bit.

David Willetts is a member of the Shadow Cabinet. His book, The Pinch: How the Baby Boomers Took Their Children's Future – and Why They Should Give It Back, is published by Atlantic Books