A NEW GENERATIONAL CONTRACT The final report of the Intergenerational Commission intergencommission.org The Intergenerational Commission The Intergenerational Commission was convened by the Resolution Foundation to explore questions of intergenerational fairness that have risen up the national agenda. This report contains the Commission’s conclusions, drawing on a deep and wide-ranging examination of the experiences and prospects of diferent generations in Britain. It provides a comprehensive analysis of the intergenerational challenges the country faces and sets out a policy programme to tackle them. 1 THE INTERGENERATIONAL COMMISSION The Commission brought together leaders from business, academia and policy- making to devise a means of repairing the social contract between generations. The Commissioners, who directed the analytical priorities and policy recommendations presented in this report, have been: • David Willetts, Executive Chair of the Resolution Foundation (Commission Chair) • Vidhya Alakeson, Chief Executive of Power to Change • Kate Barker, Chairman of Trustees, British Coal Staf Superannuation Scheme • Torsten Bell, Director of the Resolution Foundation • Carolyn Fairbairn, Director General of the CBI • Geofrey Filkin, Chairman of the Centre for Ageing Better • John Hills, Professor of Social Policy at the London School of Economics • Paul Johnson, Director of the Institute for Fiscal Studies • Sarah O’Connor, Investigations Correspondent and columnist at the Financial Times • Frances O’Grady, General Secretary of the TUC • Ben Page, Chief Executive of Ipsos MORI • Nigel Wilson, Group Chief Executive of Legal & General 2 THE INTERGENERATIONAL COMMISSION The Commission has been run by the Resolution Foundation, an independent think tank that works to improve the living standards of those in Britain on low-to-middle incomes. Its analysis has been supported by a Technical Panel: • Matthew Whittaker, Deputy Director of the Resolution Foundation (Technical Panel Chair) • Kate Bell, Head of the Economic and Social Afairs Department at the TUC • Chris Curry, Director of the Pensions Policy Institute • Anna Dixon, Chief Executive of the Centre for Ageing Better • Bobby Dufy, Managing Director of the Ipsos MORI Social Research Institute • Frank Eich, Senior Advisor at the Bank of England • Laura Gardiner, Principal Researcher at the Resolution Foundation (Commission Secretary) • Paul Gregg, Professor of Economic and Social Policy at Bath University • Andrew Hood, Senior Research Economist at the Institute for Fiscal Studies • David Kingman, Senior Researcher at the Intergenerational Foundation • Abigail McKnight, Associate Professorial Research Fellow, London School of Economics • Rain Newton-Smith, Director of Economics at the CBI • James Plunkett, Director of Policy & Advocacy at Citizens Advice • Jonathan Portes, Professor of Economics and Public Policy, King’s College London • James Sefton, Professor of Economics at Imperial College London • Anna Vignoles, Professor of Education at Cambridge University • Kate Webb, Head of Policy at Shelter • Duncan Weldon, Head of Research at Resolution Group 3 Publications of the Intergenerational Commission All publications are available at the Commission’s website: intergencommission.org 1. Stagnation generation: The case for renewing the intergenerational contract L Gardiner (July 2016), Resolution Foundation 2. Votey McVoteface: Understanding the growing turnout gap between the generations L Gardiner (September 2016), Resolution Foundation 3. Live long and prosper: Demographic trends and their implications for living standards D Finch (January 2017), Resolution Foundation 4. As time goes by: Shifting incomes and inequality between and within generations A Corlett (February 2017), Resolution Foundation 5. Study, Work, Progress, Repeat? How and why pay and progression outcomes have difered across cohorts L Gardiner & P Gregg (February 2017), Resolution Foundation 6. The pay deficit: Measuring the efect of pension deficit payments on workers’ wages B Bell & M Whittaker (May 2017), Resolution Foundation 7. The generation of wealth: Asset accumulation across and within cohorts C D’Arcy & L Gardiner (June 2017), Resolution Foundation 8. The millennial bug: Public attitudes on the living standards of diferent generations H Shrimpton, G Skinner & S Hall (September 2017), Resolution Foundation & Ipsos MORI Social Research Institute 9. Home afront: Housing across the generations A Corlett & L Judge (September 2017), Resolution Foundation 10. Consuming forces: Generational living standards measured through household consumption D Hirsch, L Valadez-Martinez & L Gardiner (September 2017), Resolution Foundation 4 PUBLICATIONS 11. A Budget for intergenerational fairness? Tax and benefit options at the Autumn Budget from the perspective of diferent generations L Gardiner (November 2017), Resolution Foundation 12. As good as it gets? The adequacy of retirement income for current and future generations of pensioners D Finch & L Gardiner (November 2017), Resolution Foundation 13. The million dollar be-question: Inheritances, gifts, and their implications for generational living standards L Gardiner (December 2017), Resolution Foundation 14. A welfare generation: Lifetime welfare transfers between generations G Bangham, D Finch & T Phillips (February 2018), Resolution Foundation 15. Cross countries: International comparisons of intergenerational trends F Rahman & D Tomlinson (February 2018), Resolution Foundation 16. A silver lining for the UK economy? The intergenerational case for supporting longer working lives P Thomson (February 2018), Centre for Ageing Better 17. The kids aren’t alright: A new approach to tackle the challenges faced by young people in the UK labour market S Clarke & C D’Arcy (February 2018), Resolution Foundation 18. Home afairs: Options for reforming property taxation A Corlett & L Gardiner (March 2018), Resolution Foundation 19. Home improvements: Action to address the housing challenges faced by young people L Judge & D Tomlinson (April 2018), Resolution Foundation 20. Technical fault: Options for promoting human capital growth K Henehan & A Vignoles (April 2018), Resolution Foundation 21. Passing on: Options for reforming inheritance taxation A Corlett (May 2018), Resolution Foundation 22. The new wealth of our nation: The case for a citizen’s inheritance G Bangham (May 2018), Resolution Foundation 5 Acknowledgements This report has been prepared by members of the research team at the Resolution Foundation, led by Laura Gardiner (Secretary to the Intergenerational Commission) and Fahmida Rahman. We are indebted to a wide range of organisations and individuals who have contributed to this work, including the many people who have collaborated on research papers, contributed to events and roundtables and submitted evidence or policy proposals. We are particularly indebted to the Commissioners who have directed this work, and members of the Technical Panel who contributed their time and expertise generously. This work contains statistical data from the Ofce for National Statistics (ONS) which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. 6 Contents Foreword 8 Executive summary 9 Key facts and recommendations 20 Section 1: Introduction Chapter 1: Generational progress – a promise under threat 25 Section 2: Outcomes and prospects for living standards across generations Chapter 2: Jobs and pay – work in progress 37 Chapter 3: Houses – not so safe 55 Chapter 4: Pensions – an uncertain future 71 Chapter 5: The state – in it together 85 Section 3: Revisiting the generational settlement Chapter 6: Living standards across the generations – progress on pause 105 Chapter 7: Renewing the generational contract – a blueprint for change 119 Section 4: A policy agenda for renewing the generational contract Chapter 8: Jobs and pay – progress in work 125 Chapter 9: Houses – renovating the market 145 Chapter 10: Pensions – saving for tomorrow 171 Chapter 11: The state – delivering for all generations 193 Section 5: Conclusion Chapter 12: A better, more united Britain 217 A new generational contract: Our policy recommendations 218 Commissioner biographies 225 7 FOREWORD ociety is held together by mutual dependence between the generations. Ten years ago I published The Pinch, arguing S that we were in danger of breaking these ties because younger generations were having a hard time when it came to their pay, housing and pensions. That was not an attempt to incite generational warfare – one of the strengths of our society is that diferent generations do still care about each other. Rather, it was an attempt to promote gener- ational thinking. It is very good news that fairness between the generations has now entered the mainstream political debate. Too often we were drifting into decisions and policies which weakened our generational contract without being aware of what we were doing. Back then it was surprisingly hard to find detailed evidence of what was happening. But the high calibre membership of the Intergenerational Commission emphasises how much attention the issue now commands. By drawing on the fantastic research capacities of our team at the Resolution Foundation and outside experts we have assembled more detailed evidence than ever before on the experience