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CPS welcomes government enquiry into intergenerational unfairness PDF Print E-mail
Friday, 15 January 2016

On Wednesday January 13 the government announced a major and long overdue inquiry into intergenerational unfairness – a move welcomed by Michael Johnson, Research Fellow at the Centre for Policy Studies, who has written extensively on the issue, raising awareness and urging government action.


In Who Will Care for Generation Y?, published by the Centre for Policy Studies, Michael Johnson warns that Generation Y could be the first generation to experience a quality of life below that of its (baby boomer) parents.

Johnson’s research is based on the Treasury’s Whole of Government Accounts (WGA) – which has a balance sheet that, unlike the National Accounts, includes many of the unfunded promises (i.e. liabilities) that the baby boomers have been making. However, the State Pension, the largest unfunded liability of them all, is notably absent from the WGA. This is ironic, given that according to HM Treasury, the WGA is a transparency and accountability project.

Michael Johnson comments: “Baby boomers have become masters at perpetrating inter-generational injustice, by making vast unfunded promises to themselves, notably in respect of pensions. Indeed, such is their scale that if the UK were accounted for as a public company, it would be bust. In any event, Generation Y will have to foot the bill.

The gap between the nation’s assets and liabilities grew by an unsustainable 51% in the five years to end-March 2014, to £1,852 billion. At 111% of GDP, this is equivalent to £70,000 per household – if the State Pension, the largest of all unfunded liabilities (roughly £4,000 billion) is included the burden per household rises to £221,000.

Reining back on unfunded promises means either we stop making them, or we fund them now. The latter, however, would require higher taxation (or additional cuts in public spending, or a combination thereof).”

To improve transparency and put a brake on deferring costs, the report outlines six proposals:

Proposal 1: The UK’s Whole of Government Accounts (WGA) balance sheet should include a liability to represent future State Pension payments, based upon a realistic expectation of the future cash outflow, discounted using the UK gilt yield curve.

Proposal 2: Any draft legislation which, if implemented, would produce unfunded spending commitments, should be accompanied by an Inter-generational Impact Assessment to quantify the impact on the young, i.e. future taxpayers.

Proposal 3: An Office of Fiscal Responsibility should be established, under the aegis of the Chancellor, to scrutinise the effectiveness and value for money of all tax reliefs and exemptions.

Proposal 4: All tax reliefs and exemptions should be subject to a five year sunset clause, after which they would cease. Lobbyists should be requested to present their cases directly to the proposed Office of Fiscal Responsibility, to ensure blue water between vested interest groups and ministers.

Proposal 5: Departmental budgets should be set both gross and net of expenditure on tax reliefs and exemptions, to ensure transparency as to the true level of financial support to each area of public policy.

Proposal 6: The Prime Minister should embellish his doctrine of personal, professional, civic and corporate responsibilities by adding a fifth category: inter-generational responsibility.
 

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