£10,000 for 25-year olds: pros and cons of the ‘citizens inheritance’ explained

9 out of 10 loveMONEY readers are against the Resolution Foundation’s proposed handout for young people. Here we address readers’ key concerns.

LoveMONEY readers have come out in force against a proposal by the Resolution Foundation to give £10,000 to every 25-year old.

When asked if they agree with the proposal, 9 out of 10 loveMONEY readers answered ‘no’, many explaining their views in the comments below.

Resolution Foundation chair and ex-Conservative Minister David Willets has warned that “no longer can anyone deny the challenge facing us as a country in maintaining a fair deal between the generations” and that “there is an obligation to act”.

However, loveMONEY readers and commentators have raised a number of concerns about the Resolution Foundation’s proposal and the wider issue of intergeneration inequality.

In this article, we go through the main concerns and the pros, cons and alternative options for younger and older people struggling with their finances.

What is the Resolution Foundation?

The Resolution Foundation is a thinktank, founded in 2005, and not part of the Government.

It set up the Intergenerational Commission, which made the proposal.

In addition to Lord Willets, the Commission has a broad membership, ranging from Carolyn Fairbairn, director general of the Confederation of British Industry, to Trade Union Congress general secretary Frances O’Grady.

The Commission also includes representatives from ageing charity the Centre for Ageing Better and retirement and pensions provider Legal & General.

Are younger people poorer than older people?

The Resolution Foundation’s report (which you can read here) presents a range of data from the Office National Statistics (ONS) and others to show that younger people face different disadvantages to older generations.

Once wages are adjusted for inflation, Millennials are earning less than their predecessors did at the same age, claims the Foundation.

Spending was a big topic for loveMONEY commentators, as reader LandOfConfusion noted:

"as expected we've got the usual proof by assertion arguments (it's because of iPhones, expensive coffees, TV's, holidays, club memberships etc)"

However, a quarter of millennials’ incomes are spent on housing, according to the report, compared to around 10% for the ‘baby boomer’ generation.

The Foundation argues that wage growth has slowed considerably since the financial crisis, hitting those who entered the wage market during or after, which is part of the reason for picking 25 as the age for the ‘citizens inheritance’.

Would the £10,000 come from pensioners?

This was a huge concern for our readers, with reader Susanne commenting that

"Potentially this could lead to a situation where a retiree living on £100/week would fund a giveaway to a young stock market hotshot making 6 or 7 figures."

Whilst the £10,000 wouldn’t be means-tested – and so even very wealthy young people would also get it – the Resolution Foundation has said it will not be funded by pensioners.

Instead, it will be funded by the replacement of inheritance tax with a ‘lifetime receipts tax’, whereby gifts above a certain level will be taxed, paid for by recipients.

It would also be funded by the abolition of Help to Buy and Lifetime ISAs, which could save the Government £1bn in the medium term, according to the Foundation.

Would the £10,000 make a huge difference to young people?

Reader Lawrence A flagged up a potential problem with giving young people £10,000 for a housing deposit:

"However, there is the possibility that injecting that money into the housing market would simply result in a surge of housing prices."

Grants for first time buyers in countries such as Australia frequently resulted in property prices rising, reducing or eliminating the advantage given by these grants.

Kate Andrew, news editor of the Institute for Economic Affairs has argued that “£10,000 is a large sum of money, but with the cost of living so wildly out of control, this kind of pay-out wouldn’t be near enough for many young people to pay off their debts or get on to the housing ladder.”

The £10,000 is intended for housing, training and education and starting a business.

However, the average student debt of those entering the workplace in England last year stood at £32,220.

Furthermore, many argue you should avoid paying student debts off wherever possible  

What about the Resolution Foundation’s other proposals?

Although the £10,000 'citizens inheritance' has made the headlines, the Resolution Foundation made more proposals about pensions reform and health care for older people.

These include applying National Insurance Contributions to pensioners earnings and the income of richer pensioners- although this money would go the NHS, not the citizens inheritance.

The changes could add complexity, warns Steve Webb, director of policy at Royal London and former Minister of State for Pensions: “whilst a number of these proposals are well-meaning and could be refined, the package as a whole would not be good news for the pension system.’”

Will any of these proposals be adopted by the Government?

This question is extremely difficult to answer.

Royal London director Webb has noted that “political parties have a tendency to ‘cherry pick’ policy proposals from reports of this nature, so we may find that some of the ideas in this report find their way into policy sooner or later.”

Many of the proposals are highly ambitious: critics of inheritance tax, for example, have been around for many years without any result.

Political parties hold their conferences in September and October and it is likely that the Resolution Foundation’s proposals will be a talking point.

You can still take the poll and give us your views on the citizens inheritance proposal.