Intergenerational fairness Contents


The intergenerational contract

1.The welfare state has long been underpinned by an implicit social contract between generations.1 The provision of state pensions, benefits and public services to the current pensioner population is funded by the taxes of the current working-age population.2 In turn they expect to receive similar benefits and services when they retire, and so on. This process of life cycle fiscal transfer has been allied to a widespread expectation that economic growth will enable each successive generation to enjoy gradually rising living standards.

2.Recent years have seen increasingly prominent concerns that shifts in the distribution of income and wealth, demographic trends and the policies of successive governments have placed the intergenerational contract under threat. Commentators such as Lord Willetts, a former Minister and Executive Chair of the Resolution Foundation,3 and the Intergenerational Foundation, a think tank founded in 2011, contend that the ‘baby boomer’ generation who are approaching or have recently reached retirement will, over the course of their lifetimes, enjoy greater provision of welfare and public services relative to their tax contribution than younger cohorts can hope to receive. At the same time as younger people face this fiscal pressure of supporting a growing pensioner population they are finding it increasingly difficult to buy a home or provide for their own retirement, concentrating wealth in older groups. Lord Willetts argues that the phenomenon of “a specific generation benefiting in an unrepeatable way” at the expense of its successors amounts to breaking the intergenerational contract and “storing problems for the future”.4

3.Survey evidence indicates that young adults are increasingly pessimistic about their chances of having a better life than their parents. As shown in Figure 1, those born in the 1980s and 1990s, the ‘millennial’ generation, are least positive of all.

Figure 1: Generational attitudes about the prospect of a better life than their parents

Sources: 2013 results from Intergenerational Justice Research Report, Ipsos MORI/Joseph Rowntree Reform Trust Jun 2013 -Base: 985 British adults aged 15+, 5–25 Apr 2013; 2016 results from Fragmented Times –Generational Strains, Ipsos MORI Base: 1,001 British adults 18+, 13th –16th Feb 2016

Such concerns about the prospects for today’s young adults are not, however, restricted to that generation. Nearly two-thirds of baby boomers (those born in the 20 years following World War II) think that today’s youth are set to have a worse life than their parents.5 While families may not think in terms of ‘generations’ and ‘contracts’, they naturally express concern for relatives of different ages.6 As Neil Duncan-Jordan of the National Pensioners Convention told us:

Pensioners are members of families. They are concerned about their children and grandchildren, just like the grandchildren are concerned about their grandparents.7

4.On becoming Prime Minister, Theresa May pledged to tackle the “growing divide between a more prosperous older generation and a struggling younger generation” as part of a “mission to make Britain a country that works for everyone”.8

Our inquiry

5.Assessing intergenerational fairness is not simply a matter of comparing the circumstances of different age groups at a given point in time, but instead the economic experiences of generations over the course of their lifetimes. We concur with the assessment of Rt Hon Steve Webb, former Minister for Pensions, who cautioned that a 60 year old who appeared relatively comfortable:

[ … ] was probably 20 when we had hyperinflation in the mid-1970s and 30 when we had mass unemployment in the 1980s. If she is a woman, she may well have started work at a time when there was not even legislation to stop discrimination against women in the labour market. I think the challenge for the inquiry is to see people over the course of their whole lives and then I think you will get a rich and very different picture.9

Equally, intergenerational fairness should not be confused with very valid concerns about inequality within generations.

6.Intergenerational fairness encompasses welfare, pensions, housing, social care, higher education, economic and monetary policy, and so on. We have not sought to consider policy in all these areas, many of which stray beyond our remit. Instead, we have focused on the responsibilities of the Department for Work and Pensions in the context of broader economic and demographic trends. We are grateful to everyone who has contributed to the inquiry.

1 Intergenerational Foundation (IGF0010), Population Matters (IGF0022)

2 See, for example, SAGA (IGF0069), Dept for Work and Pensions (IGP0065)

3 David Willetts, The Pinch: How the Baby Boomers Took Their Children’s Future – and Why They Should Give It Back, 2010

4 David Willetts, “The social contract between generations in Britain is being broken”, Resolution Foundation website, 25 October 2015

5 Ipsos MORI, Fragmented Times – Generational Strains, 2016 (published as part of the Ipsos MORI Generations project)

6 Academy of Social Sciences (IGF0032); Q18 [Lord Willetts]

7 Q81

9 Q2

© Parliamentary copyright 2015

4 November 2016