Baby boomers are taking more out of the welfare state than they put in – but is taxing their assets the way to redress the balance?


Poor old baby boomers eh?

Well, I say poor but actually they’re the ones with all the dosh. Most of them even aren’t all that old either – 72 years young at the upper end of the age range.

Still, they’re on the hook for all sorts, having won life’s lottery by virtue of being born in the right place at the right time – then leaving the national balance sheet to be sorted out by future generations.

For anyone under 35, hating your parents is more about their gold-plated pensions and soaring property prices than anything Freud might have come up with.

The latest indicator of baby boomers’ great good fortune comes in a report by the Resolution Foundation, which concludes that the generation born between 1946 and 1966 have been (and will continue to be) huge net beneficiaries of the welfare state. All in all, they get back around 20 per cent more – in education, health care, benefits and pensions – than they put in through taxation.

By contrast, the net withdrawal by people born in the 1920s and 1930s was only around 5 per cent – a consequence of that cohort missing out on big educational spending before the Second World War, then hitting the onset of the welfare state as they reached working age.

The big question, of course, is what happens to the generations that follow the baby boomers.

Generally speaking, we like to assume that the welfare state will continue to be generous. Yet it is plain – for reasons that have been exhaustively documented – that to sustain present levels of provision per head of population will require some tricky conversations.

For instance, the Resolution Foundation report suggests that overall taxation as a share of GDP would need to rise to about 45 per cent within 40 years if we want maintain existing welfare provision.

Generous as the British people are, that is a big jump from where we are today, which is under 35 per cent.

Raising the pension age is the most straightforward way to rebalance the books, forcing people to keep working – and therefore keep contributing their taxes – while at the same delaying that glorious moment of subsidised retirement.

That process has already begun however and not without causing quite a rumpus. No government will be keen to accelerate the process, nor to push the retirement age any closer to 70 (or beyond) – although as life expectancy grows, it will surely be inevitable.

The alternative approach is simply to reduce spending in other areas of the welfare state. Again, that has already happened in relation to working age social security. And if people aren’t willing to stump up a lot more tax, we could do the same across the health system, or in the education sector.

Sure, that would mean we lived in a less nice place than we do now, being both thicker and sicker – but it’s really just a question of maths.

There is though, an intriguing third way which the Resolution Foundation notes in passing. In short, get the baby boomers to cough up by somehow taxing the assets (i.e. property) which have increased in value by chance, rather than as a result of hard graft.

On the face of it, it’s an attractive solution. It’s also one based on economics, not political realities, which means it will probably never happen.

What’s more, for all that millennials and the older members of Generation X get cross about the raw deal they’ve been handed, many of them are banking on a tasty inheritance when they get their hands on their parents’ homes.

In the end, what with this being Britain, we’ll probably muddle on for a while yet; squeezing a bit of cost here, while shifting a bit of tax there.

Add Brexit into the mix and maybe there’s some sense in not planning too far ahead anyway. And of course when Corbyn gets in, the whole thing will be resolved by creating a vast debt mountain.

One day, though, we’re going to have to realise that if we want to keep the welfare state properly afloat, we’re going to have to put our hands in our pockets to fund the necessary extra taxation. And at the same time we’re going to have to get over the fact that baby boomers got lucky.

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