Lord Willetts is President of the Advisory Council and Intergenerational Centre of the Resolution Foundation. He is a former Minister for Universities and Science.
Today’s political divide is not by social class – it is by age. Under Margaret Thatcher, the Conservative Party used to get 40 per cent of the vote of those aged 30. That is now down to 25 per cent. Meanwhile, support among 70-year-olds used to run at about 40 per cent, but is now up to almost 60 per cent.
Conservatives sometimes comfort themselves that it has always been the case that young people become Conservative as they get older. But Conservatives used to get substantial support from young people. The generation gap in support for Conservatives between young and old has grown to the widest we have ever seen. The challenge for Boris Johnson is to bridge that gap.
Thatcher got the votes of young people when they were surging onto the housing ladder – half of 25- to 34-year-olds owned a house in 1989 when home ownership peaked. Now home ownership among young people has halved.
Indeed, I argue in the new edition of my book The Pinch, out this week, that the British state has become a very peculiar shape – like a body distorted by only exercising one set of muscles. When it comes to pensions and health it is a brash big ambitious state taking on public responsibilities which are if anything above the OECD average. The big muscular programmes uninhibited by any doubts about the role or capacity of the state are primarily for the over-60s. The triple lock on the state pension has become sacred, while the election campaign appears to be conducted out of NHS hospitals.
The rest of the state by contrast is a puny weakling with little to offer younger people. We are in danger of extracting money from younger workers to deliver money and services to older Tory voters. These younger people are having a tough time already: expecting them to pay up when older people own most of the wealth looks risky. In the wise words of a great American bumper sticker “Be nice to your kids – they choose your nursing home.”
The way forward for the Conservative Party is once more to be the party of the property-owning democracy. That means helping young people who are losing out when it comes to both of the big assets which really matter – a house and a pension. We need of course to build more houses. But we also need to help with the real crunch point of getting a deposit. If a young person today saves for a deposit out of average earnings in the same way the boomers did it will take them 19 years to build up the deposit they need, as against three years when the Boomers were young. If you don’t have the bank of mum and dad to help out you are in real trouble. Home ownership is becoming hereditary.
The lucrative defined benefit pension schemes that many Boomers enjoy have now closed for younger members. Instead they have the basic defined contribution schemes into which employers are putting far less – with average contributions from employers falling from 16 per cent to just three per cent.
The good news is that auto–enrolment has been taken up very widely. This basic form of pensions saving is now being used by 10 million people. There is frustratingly little money in the schemes with minimum joint contributions by employers and employees at only eight per cent, but at least the framework is there. This presents an opportunity which I hope will be seized in the forthcoming Conservative manifesto. We can use this framework of saving to give a massive boost to asset ownership among young people.
We have a vehicle for younger people to save. But now we need to put more fuel in the tank. Government should contribute, because it is right to help young people build up some assets – just as we have done in the past with council house sales or discounted shares when we privatised industries.
One option is that the government could increase the amount employers are expected to put in to auto-enrolled pensions and increase its matching exchequer contribution alongside.
Another option is to put in contributions on behalf of groups such as non-workers who currently do not participate in the scheme. It would be rather like the national insurance credits which built up pension rights for people out of the labour market because they had child care responsibilities.
A third option would be for the Exchequer to make a further one-off contribution when participants in the scheme reached the age of 30. This would be a direct way of promoting more share ownership.
These options increase the value of the savings in the pot. Alongside them the framework itself should be made much more flexible so that it is not just for saving for a pension. That would be the default option, but it should also be possible to draw on a proportion of the funds as a deposit for buying a flat. It could be used to pay for approved training or education programmes too. That would mean we were turning the pension pot into a more flexible savings scheme.
Some critics have said that it is not worth doing this as £10,000 is not enough to change someone’s life. But that is the perspective of London SW1. The truth is that a £10,000 young citizen’s investment would more than double the wealth of nearly two-thirds of adults in their late twenties.
If we do not go down this route we will be settling for a society in which the way to own wealth is to inherit it because building up wealth out of earnings will be next to impossible. We do want to help our own children. But don’t we also want them to live in an open mobile society? To do that we have to reverse the decline of property ownership and spread opportunities to young people just as was done in the 1980s.