Lord Willetts today gave a speech at the Resolution Foundation calling for wealth taxes to be imposed on the baby boomer generation in order to fund their health and social care in old age and to prevent the burden being placed on younger generations. Moreover, he has also called for a radical rethink of the council tax system.
Much of what Willetts has said is correct. Council tax rates have not been amended since they were first introduced. As such, the entire system is ripe for reform, and so it would be sensible to see whether the government can find any extra revenue this way without placing an extra burden on those on modest incomes and without complicating the tax system further.
He is also correct to point out that the health and social care system will be unsustainable in the years and decades to come. People are living longer than ever before, which means that over the coming decades there will be a record number of people over the state pension age. This will lead to huge demographic change, placing more of a burden on those in work.
Willetts rightly highlights the inherent unfairness of this. It cannot be right that younger generations which experienced stagnating wages and living standards as a result of the global financial crisis and the Great Recession should be encumbered with such a burden. Moreover, those that will be the beneficiaries will be the generation who avoided the horrors of the Second World War and enjoyed free education, a dramatic increase in living standards, and the opportunity to own their own home.
Obviously, something has to be done to redress the balance. If not, then younger generations will face ever increasing pressures, and will be ever more tempted by the reckless spending promises of Jeremy Corbyn and John McDonnell. As such, Willetts is right when he says that an increase in income tax to fund health and social care is unthinkable.
However, the suggestion by Willetts to impose a wealth tax on baby boomers is misguided. The tax system in the UK is already incredibly complex and riddled with loopholes. Any additional tax would only exacerbate the problem.
There is a real cost of living crisis in the UK, and this hits those in work the hardest. Due to government regulations things such as food, childcare, alcohol, and transport are more expensive. Moreover, and most importantly, government regulations such as planning regulations and stamp duty make housing unaffordable and rob young people of the dream of home ownership.
If the government wants to redress intergenerational unfairness then it should start with the cost of living. In particular it should focus on fixing the housing crisis through supply side reforms such as liberalising the planning system and building sensibly on the green belt.
Willetts is right in drawing attention to the financial burden resulting from an ageing population. It is crucial that the government sorts out public finances now. Progress has been made on eliminating the deficit, but more still needs to be done. Public debt as a proportion of GDP is set to be over 200 per cent by 2066 and this will hamper future generations’ ability to fund health and social care. The government should slash wasteful public spending. Moreover, it should cut corporation tax and the top rate of income tax, which will boost growth and have the added benefit of increasing revenue for HM Treasury to spend on funding health and social care.
The government should also implement an insurance style system for elderly care. In the same way that people make contributions to their pensions while of working age, people should make a contribution to their own old-age care. This would avoid placing pressure on people who, when they reach old age, would be forced (or find their families forced) to make difficult decisions about care. It would also reduce the burden on public finances. Although such a system would place extra pressure on household budgets, this should be alleviated by the government tackling the cost of living crisis and reforming the tax system – allowing working people to keep more of their money.