SAM BRODBECK PERSONAL ACCOUNT

Why will the young vote Labour? You only have to look at their ‘welfare dividend’

If taxes are an investment, then what’s a fair return? This is the focus of a new edition of The Pinch written by Lord Willetts, the former Conservative minister who reinvented himself as an expert on intergenerational angst.

Using new research from the Resolution Foundation, his economic think tank, Lord Willetts uses a novel formula to assess the pounds and pence return that 30, 50 and 70-year-olds can expect from a lifetime of paying tax.

His analysis found that every generation born since 1931 would receive, on average, more from the state than they paid in taxes over the course of their lives. This “welfare dividend” is a neat way of comparing who’s really had it best. Lord Willetts uses the result to explain why younger people – no matter their social class – are now more likely to vote for Labour, while older cohorts increasingly favour the Tories.

Demography is still destiny, but today the battle lines are drawn around the cost of university education (coincidentally vastly exacerbated by Lord Willetts himself while he was part of the coalition government), access (or lack of it) to the housing market, and huge gulfs in retirement income.

Baby boomers born in the mid-Fifties – those in their mid-60s now – come out on top, paying an average of £945,000 in tax but on course to receive £1.2m worth of public services. Their welfare dividend amounts to £291,000 – or a return of 30pc. Contrast that with millennials born in 1996 whose dividend is £132,000, a return on their tax investment of just 14pc, half that of their parents. Those born pre-1931 had it even worse (which perhaps explains why that generation built the post-war welfare state in the first place). Of course, those returns could improve if a future government decided to slash taxes or boost benefits.

But that is unlikely – for years the state has been becoming less and less generous as the huge boomer cohort retires, leaving a smaller population of younger workers footing the bill. Already, tax relief on private pension contributions has been pegged back – from £255,000 a year at the peak to £10,000 for some high earners. Child benefit paid to new parents has not kept pace with the cost of living for the past decade and now free TV licences and even universal winter fuel allowances may not be long for this world. I don’t expect to receive a state pension until I’m 70, five years after my dad got his.

How far will the welfare dividend fall before young people decide enough is enough? Lord Willetts says “the age of tax cuts is over” and no one is banking on benefits rising. Something has to give, and the fallout when it does will be enormous.

What do you think – what do you consider a reasonable return on a lifetime of taxes? Get in touch.

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