The Generation game

I promised David Willetts I would review his book “The Pinch” . The sub title tells the story – “How the baby boomers took their childrens future – and why they should give it back”.

My first reaction was that he is wrong. His case that the baby boomers have amassed so much wealth in houses and pensions that they have made life difficult for their children seemed to miss the obvious point that the baby boomer’s children will benefit from their parents wealth. David argues that baby boomers have pushed house prices beyond the reach of too many young people, but surprisingly few children inherit homes because the baby boomers go on to spend the value of their home on a good time or later on care in old age. Yet I meet children whose parents pay their home deposit, children who inherit their parents’ homes, and younger people who work in the businesses and care homes that the elderly are spending their money on. One way or another the wealth of the older generation has to find its way into the pockets of the younger generation. You cannot take your wealth with you on death. Parents often remain very generous to their children long into their childrens’ adulthood. If they spend it on themselves instead, those younger people in work get some of the benefit.

My second reaction is he is right in one very important respect. The baby boomer generation has been very selfish when it comes to public spending. It was on the watch of those quintessential baby boomers, Blair and Brown, that the UK public accounts were trashed comprehensively. The baby boomers in power wanted to spend, spend, spend. The bills they have left will fall more to their children to repay than to themselves. The baby boomers treated themselves to a great party in office, and have left the bills to the generations that follow on as Ministers and taxpayers. Under Blair /Brown we were all plunged into debt to the tune of £50,000 a head if you take into account the unfunded pensions, the PP/PFI and the bank liabilities ther state took on. The state debts the boomers incurred remain for others to settle. The private debts of the boomers die with them, usually covered by the assets they also leave.

The baby boomers were not as bad as David implies. They avoided the ruinous European wars which killed so many and did so much damage to British power and wealth in the twentieth century. The boomers did not send their children under compulsion to fight. The generation of leaders who took us into the Great War of 1914-18 have more to answer for than the baby boomers. The presence of US power on European soil cemented the good intentions of the new European continental democracies not to fight each other after 1945.

The baby boomers have presided over a huge surge in income and wealth creation through their enthusiaism for the consumer and digital revolutions. It is good news that on their watch poverty in the west has been redefined from not having enough food and clothing, to not owning a car and some of the consumer durables most now take for granted.

As a keen advocate of wider ownership I agree with David in disliking the way in the last decade progress to better funded pensions for all has been aborted by the tax and regulatory raids on the pension funds. I also agree that we need to make home buying easier for the up and coming. That requires a different approach to banks and credit, as has often been described on this blog.

David’s book is thought provoking and informative. It reminds us that government decisions are often about transfers of income and wealth between the generations, seeking to help the young and the old from the taxes of the middle aged. It is a good idea to look at the wider issue of transfers between the generations and see the willing transfers that occur as well as the compulsory ones. I recommend it to readers as a useful quarry of information about social change and the Generational tussles.

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38 Comments

  1. Posted July 6, 2010 at 6:41 am | Permalink

    I would argue about baby boomers being responsible for the house-price bubble. It started in the south east and was nothing to do with the generations. Even the young were able, with the more or less instant profits they acquired on property, to come to Scotland and buy houses, two or three times the size they sold, for the same money.

    Unfortunately, after 10 years or so of this, house prices in Scotland started rising too fast although we have few here in negative equity. The problem we now have is that the young are unable to start on the housing ladder because prices and salaries are out of kilter.

    One very unfortunate lesson for me has been the stealth of a good lump of my pension. That surely will not encourage younger generations to prepare for their later years. I certainly would tell them not to bother.

  2. Posted July 6, 2010 at 7:48 am | Permalink

    An interesting post about an interesting book, one I'll look out for.

    Question: when does the baby boomer generation end and the next begin?

    I was born in 1967 and I believe that I'm in the grey area between baby boomers and the following generation. Technically I'm a baby boomer because my parents were born in the 1930's and had me fairly late in life.

    Most of the current political leadership are about the same age as me, so will they get credit/blame as baby boomers or the children as baby boomers for whatever comes next ?

  3. Norman
    Posted July 6, 2010 at 8:09 am | Permalink

    I fear you're giving too much credit to the leaders of the day for keeping us out of war. It wasn't sensible heads, or a lack of bloodlust, but nuclear weapons (are you allowed to say this in the coalition?) The MAD aspect ensured that wars between differing ideologies were fought by proxy, luckily we had the strongest in the playground in our side so we could stand cheering from the sidelines but if things had escalated (as they always did prior to nuclear weapons) we'd have been in there (as we always have been, and even are again now).

    As far as I can tell from my reading of history, although there are cases of better and worse leaders, no one really does a good job. Best bet is to get out of the way and leave us to it.

    As for not taking your money with you, the state makes sure of that! Pay taxes on your income all your life, build up assets then at the end of it all the taxman is standing there at your deathbed waiting to tax you on it again! You'd be a fool not to help your children while you still can.

  4. Posted July 6, 2010 at 8:15 am | Permalink

    Like all generations the wealth generated is pased on to the next at death unless of course the government takes it all in death duties. I wold point the finger at government not the people.

  5. waramess
    Posted July 6, 2010 at 8:43 am | Permalink

    This has to be a spoof. Forget Bankers, it's now the fault of the baby boomers. Never the fault of those politicians who either inflated the economy exponentially or those politicians who conspired to do so.The baby boomers did not spend their childrens wealth it was the politicians.

    Recategorising politicians as baby boomers gives the wrong impression and simply pushes responsibility away from those who most deserve it.

    Baby boomers, for example, had little to do with wealth being trapped in property; that was the fauly of the politicians who relentlessly expanded the money supply over a protracted period. It had nothing to do with buying and selling houses or with the natural laws of supply and demand.

    I guess however that so long as the economy continues to be a sore subject, the politicians will continue to try to pretend it was nuffink to do wiv them guv, notwithstanding the fact that it actually reflects the very poor quality intake of MP's over the past twenty years.

  6. A.Sedgwick
    Posted July 6, 2010 at 8:45 am | Permalink

    1.
    N.I. – the biggest Ponzi scheme ever. No attempt has been made or is scheduled to resolve this, which is outlawed in any private pension scheme.
    2.
    Now that private final salary pension schemes are largely finished to new entrants it is surely time to end the inequity where savers lose control of 75% of their pension fund on retirement i.e. the Government purloins the money to finance its debt. Only mugs on basic tax levels will now save for a statutory pension.

    Both these malpractices have been ignored by the baby boomer politicians.

  7. Posted July 6, 2010 at 8:54 am | Permalink

    I would welcome anything the government could do to help young people buy a house. Both my children want to buy but the prices are too high. I have helped them as much as possibe and believe that is right for all parents. I will get Davids book it sounds an interesting read.

    • simon
      Posted July 6, 2010 at 10:01 am | Permalink

      Our MP's have invested their money in housing and are likely to seek to prop up house prices rather than let them fall to affordable levels .

      – implement compulsory saving for old age . Ensure balance between immediate and deferred reward is same for public and private sector workers .
      – restrict ownership of houses in the £1 million and down range to British Citizens .
      – discourage multiple ownership , buy to let etc
      – reduce the regulatory costs associated with new builds
      – close the door to imigration and stop paying people to have children
      – reintroduce social housing

      What absolutely should NOT be done:-
      – mortgate interest tax relief
      – subsidising buying of houses with public money

  8. Alan Jutson
    Posted July 6, 2010 at 8:58 am | Permalink

    The old saying "there are no pockets in a shroud" spring to mind here.

    But if you have accumulated some wealth (tax already paid) then surely it is better that the owner of that wealth decides where it goes, rather than the State.

    Money has no value unless it is spent, the economy needs money to circulate and if it is encouraged to circulate, each time it transfers from one person to another, by purchasing goods or a service, then the Government takes its share as well.

    Far better this system than just to save large sums of money (if you are fortunate enough to be able to do so) at all costs or for a rainy day that never comes, or the State take so much that it discourages work in the first place.

    The problem with a recession is that confidence in the future is lost, and so people hang onto their money (a normal human reaction) which makes the situation worse.

    You just have to remember that the State usually get the worst value for money in anything they buy be it product or services because they are not efficient, and its not their money syndrome.

  9. Simon2
    Posted July 6, 2010 at 9:28 am | Permalink

    Unfortunately making house buying easier usually means pathetic shared ownership schemes which ironically makes the situation even worse, or keeping rates down – which is partly how we ended up with this mess.

    It looks like buying half a house or less for the same as what a whole one should cost is the way forward if policies of the last 10 years are anything to go by. The Conservatives seem to be as much behind these potty schemes as Labour were.

    • Posted July 6, 2010 at 10:17 am | Permalink

      The only solution to making house buying easier is to make then cheaper.

      One way is to increase supply, but politicians dont like that because they would lose the votes of NIMBY's who already own houses dont like more houses being built.

      The only other way is to control house price inflation. Assuming we dont want another house price collapse, house price increases need to be kept at below inflation. The problem is that poliicians like house price increases because they generate growth. However, this is not a gift that keeps on giving because there is a natural limit to house prices (as a share of income) and we are already near to the higher limits.

      The house prices will self correct over time. There will be another house price boom and bust, and it will be sooner rather than later. House price cycles used to be 20 years, I'm guessing this one will be 10 years because prices did not fall enough in this recession.

      • Mark
        Posted July 6, 2010 at 3:45 pm | Permalink

        Given that banks have to refinance over £750bn of borrowings by end 2012 to support current mortgage lending of £1,238bn I think that the dead cat bounce in housing markets should soon be at an end – unless the government is going to allow the £750bn to be added to the national debt.

    • Posted July 6, 2010 at 10:39 am | Permalink

      In some ways they seem to be, but have cut funding to some of the shared ownership nonsense and are making good noises on the housing benefit taxpayer subsidies to landlords.

      The real test of their mettle will be 2011 onwards when the credit guarantee scheme and special liquidity schemes come to an end.

      Without the CGS state guarantee Lloyds 4/5 year bonds are paying well over 5% interest. Would there be 3/4% mortgages on the high street if the government weren't pinning interest rates to the floor with £500b of funny money? (£200b QE and £300b CGS/SLS)

      No, there would have been an Irish style house price crash. Will the tories risk sterling to keep interest rates down and house prices up?

    • Kevin Peat
      Posted July 6, 2010 at 11:06 am | Permalink

      Agreed. There should not be any artificial assistance to get on the housing ladder as good intentions only go to further inflate the already impossibly expensive housing market.

      Apropos the original post: How does a parent living in the average three-bed semi transfer sizeable 'wealth' to the next generation – especially with life-expectancy increasing to 80 plus ?

      The ramifications of this fixation with property could be further brain-drains as up and coming generations here realise that all that Britain has to offer them is the role of tax-cows and renter-serfs… all in a place which increasingly resembles a ramshackle and disorderly favela.

      For heaven's sake let the housing market collapse to a realistic level to stop people bingeing on equity-backed credit and to give our youngest and our best skilled an incentive to stay here.

      • UK ex pat
        Posted July 6, 2010 at 1:28 pm | Permalink

        I left the UK six years ago, in my mid-twenties, to seek a better life.
        Despite having a good job and salary, I could only afford a grotty 2-bedroom flat in a rough neighbourhood, and I couldn't see the situation improving in the near future.

        I emigrated to the Republic of Ireland. Since arriving here, I've managed to buy 0.5 acre of land and build my own house on it. These opportunities just don't exist in the UK. Well may be they do, but only in locations where there are no jobs.

        I do miss the UK, but the quality of life issue settles it for me.

        I think that one of the big issues with housing in the UK is the manner in which land is allocated. I often travelled by train between Newcastle and London. The towns and cities would fly past in the blink of an eye. During the rest of the journey, one could see nothing but fields.

        It's annoying that most of the UK population are herded into overcrowded cities, when there's plenty of room to build on, without ruining the landscape.

        I've never understood why the planning laws are so strict about this. To make the UK an attractive place to stay for our brightest and best, I think housing supply should be increased. Another option is to control immigration, but the politicians, collectively, seem to have given up on this.

        • Kevin Peat
          Posted July 6, 2010 at 6:03 pm | Permalink

          Of course many of the politicians have second homes and exist in that social strata which is most benefitted by mass immigration. Upward pressure on housing prices/downward pressure on manual wages.

          Kerching !

  10. Posted July 6, 2010 at 10:04 am | Permalink

    Maybe the problem is caused by increasing life expectancy.

    With people living until their 80's, their children will be in their 50's-60's, so that wealth is too late to buy houses. It probably goes towards pensions instead.

  11. Nick
    Posted July 6, 2010 at 10:08 am | Permalink

    Why the concentration on assets?

    The real issue is government debts.

    1.2 trillion on civil service pensions for a start.

    Now before the election you promised these numbers would be released. They haven't been.

    Time I think for you to ask a direct question in the house.

    What is the present value of the civil service pensions liabilities?

    Ditto for state second penson, and the state pension itself.

    • Mark
      Posted July 6, 2010 at 3:48 pm | Permalink

      Would you trust the actuarial assumptions about discount factors? I'd rather see the forecast spending year by year in real terms (constant money), which is probably more definable. It also would show when the real problem will arise, and allow a better comparison of alternatives for dealing with it.

  12. Posted July 6, 2010 at 11:13 am | Permalink

    A few minor quibbles:

    You may not be able to take it with you biut you can use the asset value of your house to do a few world cruises after retirment. This is common enough to be significant but not common enough to be overwhelming.

    We may not have had the murderous European wars of previous generations but the cold war, by taking something like 5% of western GNP & about 20% of Soviet had a total cost over 40 years comparable with a hot war.

    The baby boomers are responsible for house price rises because that boom iwas caused by government regulation which they supported.

    However the major point where Willets hypothesis fails is in ignoring economic growth. The world economy has been growing at around 5% annually & mismanaged though we are our economy has shown strong positive growth. The real legacy to the next generation, since Og showed his son how a pointed stick worked, is the technology improvements that make life easier. These have never been greater.

  13. albion
    Posted July 6, 2010 at 11:16 am | Permalink

    How disappointing (but not unsurprising) that John chooses not to tackle the real issue in this debate – the massive overpricing of UK residential property.
    New Labour's property and credit bubble was only the latest in a long series that have afflicted successive Conservative and Labour governments.
    Why cannot John, with his customary intellectual honesty and rigour, campaign for simple measures to prevent such asset bubbles occuring in the first place? Things like, for exemple, regulated mortgage lending, reformed tenancy laws and equitable tax treatments between homebuyers and property 'investors'.
    Perhaps he should look at the German exemple – affordable high quality homes, fair and efficient rental market, and low personal debt levels.
    John would also benefit from studying the reasons behind Germany's industrial success, achieved in spite of the high costs of their generous social benefits and the strength of old-style trade unions – and I haven't even mentioned the football !!

    • Simon
      Posted July 6, 2010 at 12:23 pm | Permalink

      The Germans hit rock bottom and were forced to put together a coherent plan .

      UK PLC has not had a proper plan for at least 65 years possibly longer .

      Not expecting to see one in my lifetime .

      • OurSally
        Posted July 7, 2010 at 9:36 am | Permalink

        Better than that; the way Germany works now was designed and implemented by the military personnel of the occupying forces after the war. It was built by sensible, educated people, trained to organise things and with unlimited resources and little outside interference. They kept politicians out of the loop till it was finished. That must be why it is, well, most of it, so tidy and efficient.
        Another factor was the several million refugees from Eastern Europe, mostly middle class people who arrived with nothing but a will to work. Some intelligent bod decided to disperse them evenly about Western Germany. The result you see today.

  14. Paul Turnbull
    Posted July 6, 2010 at 12:22 pm | Permalink

    So basically, if you haven't got parents capable of handing down a nice inheritance you're pretty much screwed. Are you advocating a society in which sucess and financial well-being is determined by whom you were born to rather than how hard you work?

    • albion
      Posted July 6, 2010 at 4:03 pm | Permalink

      I don't believe he is, although having rich and well-connected parents clearly helps in some fields of professional life….. I am sure I need not name people.
      For the less fortunate, Big Society will ensure they get employment as personal carers looking after geriatric baby boomers.

    • waramess
      Posted July 7, 2010 at 10:18 am | Permalink

      Well said.

  15. Ross J Warren
    Posted July 6, 2010 at 1:50 pm | Permalink

    The baby boomer generation has been the wealthiest of all time, with the highest "general" standard of living. In just Fifty years one generation has consumed around half of the worlds known oil reserve. In many respects life has never been fairer for those lucky enough to live in the west. Almost everyone has a decent home to live in, a job that pays the bills and even a personal Car and a home computer system. This generation has avoided a world war, and has reduced the number of totalitarian states to a small rump.

    Despite all of this wealth we find ourselves in an economic slump with house prices out of control and the real possibility that our children will suffer from a double whammy of high unemployment and high prices.

    It is my opinion that the main reason for our plight is poor management over a long period. Rather than setting sensible targets and managing our good fortune we have acted in the same manner as a poor person who having won a tidy sum on the horses goes straight out an blows it all on drinks for his mates.

  16. Posted July 6, 2010 at 1:56 pm | Permalink

    I found "The Pinch" very difficult to read. I gave up in confusion at his concern for the baby boomers' goats, and I still think he over-emphasizes the role of bovide farming in the political and economic history of this country in the twentieth century. Besides, even before then, we preferred sheep and pigs. The notion that all baby-boomers had kids was just a daft one.

    NOTE: I am being somewhat sarcastic. I know that when he said 'kids' he really meant 'children'. On the other hand his poor English would be funny rather than worrying were he not the man in charge of our universities right now.

    • Simon
      Posted July 8, 2010 at 9:49 am | Permalink

      Huw ,

      Perhaps we should be more concerned with Mr Willet's grasp of Maths than his command of the English language !

  17. Will J
    Posted July 6, 2010 at 3:22 pm | Permalink

    John – do you have any ideas on how the present housing bubble might be deflated? Despite the crash housing prices are staying very high, largely I presume owing to people's unwillingness to sell for significantly less than they paid. The corrective doesn't seem to have taken root, and if we now enter an upswing with looser credit, as you are advocating, then it surely won't any time in the near future. Which is a problem, of course, because house prices remaining too high for first time buyers represents a major obstacle to the wealth accumulating capacity of the next generation – except for those fortunate enough to inherit a house from their prudent yet quick-dying parents.

  18. adam
    Posted July 6, 2010 at 6:40 pm | Permalink

    i haven't read it but i downloaded a lecture he gave on it
    My opinion was that it was a very superficial narrative

  19. JimF
    Posted July 6, 2010 at 10:04 pm | Permalink

    Yes there were a section of the "baby-boomer" population who were either complicit in building up state debt or were taken it by those implementing it. But many more of us were sceptical from the start. Whilst working on our own behalf in the private sector and paying fair taxes, our situation was being undermined behind our backs by Blair/Brown and other politicians spending more than we were paying, tilting spending to encourage the Scots, Welsh, immigrants and public sector employees to vote them back in. Low real interest rates and printing money always seemed wrong, but they were done to maintain a housing boom which was not in the long term interests of the Country, and most of us know that.
    These irresponsible actions can hardly be laid at the door of the baby boomer generation in general, as you and David Willetts suggest, but more at a that of a select few who pulled the levers.
    In other eras, what they have done would be classed as treason.

  20. Kevin Peat
    Posted July 7, 2010 at 9:41 am | Permalink

    The Baby Boomers deferred war their whole tenure marked by the undemocratic cessation of hard-fought-for powers and freedoms to a supra-national and unaccountable entity.

    The Baby Boomers failed in the battle for intra-national peace, their appeasement of and acquiessance to both the criminal and leftist element being a catastrophic and spectacular disaster. Having been gifted, by their war weary parents, the most civilised and peaceful country ever to have existed, they managed to transform Britain into a cultural and lawless mess.

    The Baby Boomers deferred poverty by starting the credit addiction and by slyly changing the state pension burden on to their kids. And through socialist wealth re-distribution they promoted the state-subsidy of poor parenting causing social and educational decline.

    Bills were deferred by trading Captain Mainwarings for Adam Applegarths thus hollowing out our great economic institutions and deferring all the payments for the next generation, this done whilst delivering to their children the double-whammy of an erroded industrial and educational base.

    • Kevin Peat
      Posted July 7, 2010 at 11:59 am | Permalink

      House prices will be an issue.

      Baby Boomer OAPs should consider the effect of house-blocking family style properties. They may ramp up the value of their homes by staying in them and reducing supply, they may not – especially if essential skilled workers decide to leave the country because they feel (rightly) that they deserve a better stake in it than they're getting.

    • Mark
      Posted July 7, 2010 at 1:22 pm | Permalink

      Can I suggest you name the real culprit, which is not the "Baby Boomers" but the previous Labour government? Willets should have made that clear too – but then so much of his thinking is woolly and his analysis is in many places hopelessly flawed and lacking proper rigour.

  21. billyb
    Posted July 7, 2010 at 12:36 pm | Permalink

    I hope you will reverse the pension fund raids and other disincentives then, and make pensions worth saving for

  22. Alan Wheatley
    Posted July 7, 2010 at 1:27 pm | Permalink

    Generalisation applied to people is generally unsatisfactory. So to ascribe behaviour to "Baby Boomers" as if the whole of that population are equally "guilty" is bound to a misrepresentation. The fact that some behaved in a particular way does not mean that all did. And those that did will claim it was not our fault, or we only did what "you" wanted or allowed.

    Indeed, if a national pattern can be identified then this is more likely to be the consequences of those who are in a position to make a big impact, such as governments, or major external events, such as the rise of a nuclear armed Soviet Union.

    This becomes very important and personal if some form of payback is demanded of those who it is claimed benefitted in the past. So why should I now be penalised just because I happen to be of a generation despite the fact I do not exploit the situation in the way claimed for that population as a whole.

    Should not government be "paying back" for their collective miss-management?

  23. Posted July 7, 2010 at 2:19 pm | Permalink

    I will also look out for this book, there seems to be many around now examining the forces that that got us here, economic, social and historical. I think that each has an aspect of truth but no single one is definitive. I would recommend and would be interested to hear your view on Prof Dorling's "Injustice and why social inequality exists". That puts forward another interesting view.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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