Young people in the UK will now be poorer than their parents because of a vast £2.3 trillion transfer of largely unearned property wealth to baby boomers, new research has found.
The expectation that each generation will be wealthier than the last has broken down and has in fact gone into reverse, with all age cohorts born since 1955 falling behind predecessors at the same age, the Resolution Foundation think tank found.
A typical adult born during 1981-1985 had half as much total net wealth at age 30 as a typical adult at the same age five years before them.
Those born in the 1950s have received an average property windfall of £80,000, as well as £45,000 from generous defined benefit pension schemes, the report, which was produced for the Intergenerational Commission, found.
Much of this bonus has effectively been paid for by younger generations who have had to contend with spiralling property prices while their wages stagnate, partly because firms have had to plug huge deficits in their pension schemes.
This transfer of wealth to the generation now reaching retirement is the result of economic circumstances and and policy decisions; it is not a reward for work, skills or conscious saving, according to the report.
The Resolution Foundation calculated that 82 per cent of the £2.3 trillion transferred to baby boomers was simply the result of ballooning property values.
Laura Gardiner, senior policy analyst at the Resolution Foundation, said: “Britain’s pre-crash property boom created a huge, unearned and largely tax-free £2.3 trillion housing wealth windfall for those old enough and lucky enough to be home owners at the time.
“But while the property bubble hugely benefited many of Britain’s baby boomers, it has also driven generational wealth progress into reverse by pricing younger people out of home ownership.”
The fact that young people are now priced out of the property market and finding it so difficult to accumulate wealth is therefore a “huge living standards concern for us all”, Ms Gardiner said.
It is not just between different generations that wealth inequality has risen, the report found. The gap has also widened for every age cohort that has reached adulthood since the late 1970s.
As a result, disparity of wealth is now almost twice as high as inequality of incomes, despite the fact that the latter garners far more attention, the report said.
While it is right to discuss average real wages that have now been stagnant for a decade and are again falling, wealth is also an important determinant of quality of life, the report said.
In addition to a huge property windfall, older generations have also been handed an £800bn pension bonus. Because many baby boomers are members of generous defined-benefit schemes, their retirement incomes have been protected, even as returns on investments have stayed low.
Together, pensions and property have seen the amount of wealth accumulated by individuals jump from £9.9 trillion to £11.1 trillion in less than a decade since the financial crisis.
The Government must adapt to this reality, the Resolution Foundation said. Despite rapid wealth accumulation, the amount of taxation raised from wealth, as opposed to income, spending and other sources, has remained flat since the 1980s, the Resolution Foundation said.
In the years since the financial crisis there has been significant pressure on the public finances, which has been used to justify real-terms cuts to essential public services such as health and education.
Politicians must therefore look again at the tax system, “which has failed to keep up with the meteoric rise in the size of the UK’s wealth”, the report said, adding: “it is difficult to justify continuing along this path”.
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