Cheques for millennials stoke UK’s asset bubble

LONDON (Reuters Breakingviews) - Millennials need help, but not necessarily a 10,000 pound cheque. A report released on Tuesday flags the dire outlook for some young Brits. Its solution, however, is eerily similar to one that helped stoke an asset-price bubble at the heart of the problem.

Revellers dance as Biffy Clyro perform on the Pyramid Stage at Worthy Farm in Somerset during the Glastonbury Festival in Britain, June 25, 2017

The 229-page report by the Intergenerational Commission, chaired by former Conservative minister David Willetts, is grim reading for anyone born after 1980. Millennials earn no more than those born 15 years earlier, and it takes them over six times longer to save a typical house deposit. Already weighed down by steep rents and student debt, they face an unprecedented tax burden to pay for an ageing population, stingier pensions and less secure employment.

True, a bumper inheritance awaits when asset-rich baby boomers shuffle off. The value of estates passed on at death will more than double in the next 20 years, the commission reckons. But that morbid payday is unevenly distributed: almost a third of 20 to 35-year-olds may see no transfer of property wealth. And lucky millennials who do inherit will on average wait until the age of 61.

Part of the commission’s solution is a 10,000 pound birthday present for 25-year-olds, only to be used for education, pensions, house deposits or starting a business. It’ll be funded by a new “lifetime receipts tax”, which replaces the unpopular inheritance tax.

Reforming inheritance tax is a no-brainer: the levy raises less than 1 percent of government income and encourages aggressive tax-planning by those it’s supposed to target. The commission reckons shifting the burden to receivers rather than givers, and taxing all gifts above 3,000 pounds over a lifetime rather than just around the time of death, will draw less ire and raise more revenue.

Using proceeds for 10,000 pound gifts makes less sense. Millennials indeed have less wealth than their elders, whose assets like housing soared in value thanks to loose monetary policy and lower rates of construction. Rather than tackling the source of that problem, cheques for millennials risks simply bring a new generation into the asset-price boom, similar to 1980s-style policies that subsidised home ownership. The UK would be better off using its tax reform proceeds to sort out Britain’s housebuilding and planning systems. Or financing infrastructure and education that could create not houses for disgruntled millennials, but jobs.

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- Britain’s Intergenerational Commission on May 8 proposed a 10,000 pound ($13,520) “citizen’s inheritance” to be paid on recipients’ 25th birthday.

- The scheme would cost about 7 billion pounds per year from 2030, and would be available to all citizens and people born in the United Kingdom who have spent the majority of their life in the country.

- Use of funds would be restricted to any mix of education and training, pension savings, a house or rental deposit, and starting up a business.

- It would be funded by a reformed inheritance tax, levied at a 20 percent rate on receipts of inheritances and gifts throughout an individual’s lifetime past a 125,000 pound tax-free allowance. After 500,000 pounds, the rate rises to 30 percent of receipts.

- The Intergenerational Commission is hosted by the think tank Resolution Foundation and chaired by David Willetts, the minister for universities and science in former Prime Minister David Cameron’s Conservative-led coalition government.

- For previous columns by the author, Reuters customers can click on [PROUD/]



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