Economic Progress

Here's how $13,000 could solve the generational wealth divide

People sunbathe in hot weather on Primrose Hill in London, Britain May 7, 2018. REUTERS/Simon Dawson

The wealth of most British 25-29 year olds would be more than doubled if they were given £10,000. Image: REUTERS/Simon Dawson

Will Martin
Markets Reporter, Business Insider UK
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Economic Progress

A British think-tank has come up with a radical proposal to address the huge gap in wealth between the country's older generation and the so-called millennial generation — give every single citizen a chunk of cash on their 25th birthday.

Generational inequality has become something of a hot button issue in major economies around the globe in recent years, with younger people struggling to get on the housing ladder while their parents and grandparents accumulate wast wealth.

The Resolution Foundation, based in London, suggested that one way to solve such inequality is to give younger citizens a so-called "citizen’s inheritance" on the day they turn 25.

The proposed payment, set at £10,000 ($13,600), would be funded by changing the way the UK's inheritance tax — levies on money inherited from relatives or loved ones — is structured. As it stands, British tax laws mean that any inheritance over £1 million ($1.36 million) is taxed at 40%.

Under the Resolution Foundation's proposal that tax would change so that all inheritances under £500,000 ($680,000) would be taxed at 20%, while anything over a cumulative £500,000 would be taxed at 30%. The extra income from these taxes, the foundation said, would then be used to fund the "citizen's inheritance."

The proposal is designed to address the Resolution Foundation's belief that inherited wealth is set to become an even more important driver of future prosperity than it currently is.

Essentially, those who do not inherit wealth from parents and relatives will end up at an even more severe disadvantage financially than those who do.

"This approach would have a significant impact on the asset-holdings and opportunities of young adults in Britain," the report notes.

"First and foremost, it would markedly increase the assets of the vast majority."

"The wealth of nearly two-thirds (62 per cent) of 25-29-year-olds in Britain would be at least doubled if a £10,000 CI were handed down today," it adds, pointing to the chart below:

Image: Resolution Foundation

"There is a risk that the growing importance of inheritances means intergenerational gaps combine with intragenerational inequalities to hold back social mobility," the report said.

While the idea of a free £10,000 sounds hugely appealing, the Resolution Foundation caveats its proposals by saying that the grant would be subject to usage restrictions — preventing people from spending it all on booze and cigarettes.

Here's what the Resolution Foundation said:

"The CI should have four permitted uses: funding education and training (including paying off tuition fee debt); deposits for rental or home purchase; investment in pensions; and start-up costs for new businesses that are also being supported through recognised entrepreneurship schemes."

The Resolution Foundation's proposal is just one of many inventive ways that researchers are trying to address the growing generational divide when it comes to wealth.

Last year, for example, Finland undertook an experiment with so-called universal basic income (UBI) — whereby some citizens are given an unconditional payment to do with as they please. The experiment will be abandoned after its initial period, but UBI has many high profile backers, including the likes of Elon Musk and Mark Zuckerberg.

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