Carys Roberts is a Research Fellow at IPPR.
It’s now well understood that the Conservative party has a problem with young people. Whereas in 2015 only 47 per cent of 18-24-year-olds voted, the best available estimates suggest that youth turn-out went up by 16 percentage points in May.
Worse, two thirds of those young people voted for Jeremy Corbyn’s Labour Party. The election result has caused the Conservatives to examine their policy offer to young people, including hints that young people will be prioritised in next month’s budget.
Currently, the UK economy isn’t working for young people, and neither does it hold promise for their futures. To solve the party’s youth problem, the Conservatives need concrete policy proposals to fix this.
Part of the answer lies in raising wages alongside the security and quality of work. But the party must also design policy to spread the ownership of capital and assets.
A new discussion paper for the IPPR Commission on Economic Justice shows that most people expect today’s young people to have more debt and less wealth than previous generations: 74 per cent of people think 18–24-year-olds will have less savings and investments, 72 per cent think they will have less housing wealth, and 80 per cent think they will have more debt.
Sadly, these expectations have a strong basis in reality. Twenty years ago, the average home cost around 3.6 times annual earnings; today it is 7.6 times. On current trends fewer than half of ‘millennials’ (those born between 1981 and 2000) are expected to own their own home by the age of 45.
Every generation since the post-war ‘baby boomers’ has accumulated less wealth than the generation before them had at the same age. Over the next decade, the average household’s unsecured debt is projected to increase by 40 per cent in real terms, compared to a 10 per cent increase in disposable income.
Taken together, these trends suggest the problem is not just that young people don’t have wealth now, but that they will have less wealth at each age, and experience deeper wealth inequality than previous generations.
Two features of the UK economy today support the case for the government to intervene.
The first is that two technological trends, particularly automation and the rise of digital companies, are likely to increase the share of national income going to profits (capital) rather than wages (labour). The IMF estimates that half of the fall in the share of national income going to wages since the 1980s has been driven by technological change. In a world in which more work is done by robots, it’s increasingly important who owns the robots.
The rise of digital companies also risks concentrating wealth, particularly as powerful network effects mean they trend towards becoming monopolies, generating ever-greater rewards for a small number of ‘super star’ firms and their founders. In this context, for the economy to work for everyone, it’s essential to look at who owns capital.
The second is that much of the wealth held by the wealthiest households has been accumulated through windfall gains, which goes against the Conservative vision of a meritocratic, capitalist economy.
Windfall gains include the vast increases in wealth seen by owner-occupiers who bought their home before the house price boom, and who will not pay capital gains tax on that increase, as well as those who have seen their property values multiply because of public investment in infrastructure projects like Crossrail.
They also include income and rents from assets that are generated without effort on the part of the wealth owner, and which are often taxed more lightly than wages. Most controversially, windfall gains include wealth that is handed through families and which some people receive by accident of birth.
Theresa Mau has set out her vision for a ‘meritocratic Britain’. But how well you do in today’s economy depends too often on luck. As George Freeman MP has argued, it’s unsurprising that young people are turning to Labour’s promised reform of capitalism, when modern capitalism has in-built windfall gains accruing to capital, and they don’t have the capital to benefit.
To appeal to young people, the Conservatives should pledge to spread ownership of capital more widely. Yougov polling for IPPR shows 57 per cent of people would support the government doing more to tackle wealth inequality.
But the answer isn’t a return to the ‘share-owning democracy’ championed by Margaret Thatcher. We tried this in the 1980s, and it simply led to a concentration of share ownership in an even smaller number of hands when people rapidly sold their shares. Instead Conservatives should consider policy options to create broadly shared capital ownership that provides everyone with a stake in the economy and enables everyone to share in the returns to capital.
These include encouraging and incentivising employee ownership at the firm level, supporting the cooperative and mutual sector, and (as John Penrose MP has argued), creating a Sovereign Wealth Fund that invests in strategic sectors and pays a citizen dividend. At the same time the Conservatives should support building more affordable housing, and capturing the uplift in the value of land following public investment.
Finally, while tax policy shouldn’t target the income families put aside each month throughout their lives, smarter, fairer wealth taxation should be considered to share windfall gains and unearned returns to wealth. The IPPR Commission on Economic Justice will be exploring all of these in the coming months.
It’s not a universal truth that the Conservatives don’t have youth appeal. In fact, the source of the Conservatives’ youth problem is relatively straightforward, and many of the solutions are rooted in Conservative principles of meritocratic capitalism.
Fixing the problem will require the party to enter uncomfortable territory, including capital gains tax and inheritance tax. But tackling the politics head on is essential to creating an economy that works for everyone. The British public are ready for that change.