Whether within families, across the nation or between nations, inter-generational rebalancing is a vital part of the cycle of life. As Benjamin Franklin said, ‘nothing is certain except death and taxes’: and worldly wealth counts for nothing in the afterlife, as the parable of Dives and Lazarus explains so graphically.
The problem is that we're not doing well at inter-generational rebalancing: not within families, with young adults finding it impossible to extricate themselves from student debt, not across the nation, where the polarisation of wealth remains acute, and not internationally, as we see from the Credit Suisse Global Wealth databook.
It was David Willetts, founder of the Resolution Foundation, who first drew public attention in the UK to the increasing problems of inter-generational wealth transfer in his book 'The Pinch'. He wrote of the increasingly stretched nature of inter-generational links: as the gap between generations gets larger, old people live longer, and more families break apart through divorce and separation. Meanwhile mass migration and significant variance in childbirth rates between rich and poor result in huge wealth differentials across generations.
The denial of hope and opportunity to young people is most acute for black and minority ethnic people. The root cause of racial injustice is economic inequality, and inter-generational rebalancing, provides the solution for resolving that inequality.
The way forward for inter-generational rebalancing is to combine targeted starter capital accounts with incentivised learning: the latter, so that there is a strong sense of the young person having ‘earned’ the assets.
The vehicle for these starter capital accounts would be closely aligned with a much more targeted version of the United Kingdom's Child Trust Fund. There were six million individual accounts opened for young people throughout the UK between 2002 and 2011: so in the context of egalitarian capitalism, they have provided a form of individual ownership for all.
Such a Government endowment today should only apply to those young people whose families and background leave them without hope of meaningful family inheritance. In the steady state, just a quarter of current inheritance levies targeted at empowering these young people would enable accounts to be established with an initial £1,000, with £1,000 more to follow at age 7.
An incentivised learning programme should be introduced alongside this starter capital account, to offer the opportunity for these young people to ‘earn’ a further £3,000 each and, in so doing, prepare themselves to be ready for a fulfilling and economically rewarding adult career. Operated at national level and offered to young people most in need, it would reward those who make the effort to progress through a structured programme of building their life skills with small but meaningful tranches of capital to provide a resource base for starting adult life.
How might we finance this permanent ratchet designed to empower disadvantaged young people? The answer is from the proceeds of Inheritance Tax.
In the United Kingdom, Inheritance Tax is a levy on privately-owned capital which is placed into the Exchequer and then spent as current public expenditure. The process is therefore used to move private sector savings and investment - which had been 'put aside for tomorrow' - into the public sector running needs of the present. It currently amounts to £7bn pa.
There is a natural government aversion to hypothecation, and of course the proposed financing for inter-generational re-balancing can be drawn from the pool of current spending: but logic suggests that the proceeds of IHT levy, which is paid by less than 5% of estates (therefore by those in the wealthiest cohort) at rates set by the Government in power, should at least in some part be employed in financing inter-generational rebalancing.
This also recognises the natural human cycle of life and death, and of course the fact that, as Dives discovered, you can't take it with you when you die.