There’s no doubting that when it comes to thinking outside the box, the recent proposals put forward by the Resolution Foundation are certainly ‘out there’. As a nation – and certainly our government in recent years is in this bracket – we appear to be continually thinking about how to get younger people on the property ladder as well as the bigger challenge in closing the wealth gap between generations, not forgetting the benefits that those who inherit wealth have over those that do not.
If the report, entitled, ‘A new generational contract: the final report of the Intergenerational Commission’, was designed to generated column inches and get the industry and wider population talking about these issues, then it’s already a case of job done. There are some eyebrow-raising measures within this tome and, without being an expert in party political matters, I suspect these will be beyond the pale for many politicians and the constituents they represent.
That said, as mentioned, if we’re looking to solve some of the problems between the generations – in particular, the notion that the younger members of society are disenfranchised and can no longer hope to benefit economically like those who have come before them – then at least the Foundation has presented a range of potential solutions that ‘might’ help.
Grabbing most of the headlines has been the ‘Citizen’s Inheritance’ idea which suggests giving every 25 year-old £10k. Before the avocado sales people start dancing in delight – apologies for the stereotype – this money could only be put towards four general uses: housing, education, starting a business or a pension.
Now, before we even start, you might well have to suspend your disbelief on this one because, even the most tightly-managed scheme might find itself running into trouble. You can see Middle England already getting into a large harrumph about the amount that would be provided – they will be even more upset when they find out that it’s going to be funded from a 20% on all gifts and inheritances throughout a lifetime – followed by a suggestion that the money won’t truly be put towards those uses anyway.
I have to slightly agree that this does have the potential not just to go wrong, but go spectacularly wrong, which is why if such a proposal ever made it to the statute book, you would need a system so tight, you’d struggle to get Rizla between it. And even then, wouldn’t there still be potential loopholes?
Okay, the money goes into a pension – that’s sorted, the individual won’t be able to get their hands on any of it for another 30 years. So, what about housing? Is this only going to be allowed for a deposit to purchase? If so, then it could be placed in an ISA and only released during the conveyancing process, much as we have now with the Help to Buy ISA. But, what if the individual has no plans to purchase? Could they put this towards their rental costs? If so, where would the money sit?
Putting the money towards education seems easy enough to sort – again, the money must be kept in perhaps an Education ISA and can only be accessed by approved education suppliers – Universities, college, and the like. That seems doable, but what about money for a business? Again, it could be kept in an account to be accessed by the business that’s set up, but what’s to stop a generation of 25 year-olds, setting up limited companies, accessing the £10k, and either paying themselves a £10k dividend and allowing the business to fail, or just simply taking the money and running.
Now, admittedly, this is a very pessimistic appraisal of today’s 25 year-olds, and I’m sure the vast majority would welcome the money and put it to good use. But, in such schemes, there are always ways and means, and given the scrutiny such a policy would be under in practice, you only need a few ‘scare stories’ to drag the whole thing into disrepute.
Ideally, of course, in our market we’d say that every individual should be able to put £10k down and purchase themselves a property – but not everyone wants this, how much extra would need to be saved for, and when push comes to shove, if the money is required elsewhere why shouldn’t that individual use it. I suspect that if such a policy ever saw the light of day, the options available would be even less – perhaps it would just be the pension option because the government could argue that an individual can’t squander this, given that they’d be 55 years old before getting it.
In essence however I support the blue sky thinking on this one. We need organisations like the Resolution Foundation thinking along these lines because we may be at a point where traditional solutions to such inter-generational inequity are not relevant or achievable. Whether any government would countenance putting £10k into the hands of every 25-year old seems unlikely however, especially if they wanted to try and tell people how to spend it. In my experience of parenthood, that’s never going to work. So, perhaps it is back to the drawing board on this one.
Pad Bamford is business development director at AmTrust Mortgage & Credit