Earlier this week the Resolution Foundation proposed that 25-year-olds be handed £10,000 to help reduce inter-generational unfairness. As the story broke, our Social Media Manager, Henry Earl, spoke live on BBC Radio (at 02:47.00) about the proposals. Now, Ben Underwood shares his thoughts and looks at how far £10,000 may actually go…
Realistically how far will £10,000 go? Are all 25-year-olds really going to spend this money on housing? Or will it just cause unnecessary demand-pull inflation as it fuels today’s spend-happy generation?
An independent think tank has recently suggested that pensioners who still work should pay national insurance, people should not pay inheritance tax and everyone should be given £10000 once they turn 25 which they claim will ‘help them to get on the property ladder, fund education and set up businesses’ to try and counter the high costs of both housing and education which is restricting social mobility of today’s youth.
But, there are there are issues with this argument. Will 25-year-olds really spend this money on housing, education and setting up businesses or will it just be thrown down the drain on nights out, luxury items and holidays?
With house prices in the hundreds of thousands of pounds and continuing to rise, how far is £10,000 actually going to go and is such a relatively small amount going to incentivise someone to enter the property market? The same goes for education. The current university debt system is efficient as it is. People only start paying it back when their income enables them to and even then they only have to pay it as a small portion of their income. This means students are extremely unlikely to spend this money on housing and education.
If this is the case it will leave young adults with £10,000 which they won’t have a use for. Consequently, they would be more inclined to spend on short-term goods which will not improve the economic performance on the country with aggregate demand (AD) shifting to the right through consumption without the desired increase in productivity means the result will be an increase in inflation, pushing up prices for everyone. At the end of all, this social and economic inequality will remain relatively unchanged.
Even if these people spend the £10,000 they are given on housing it will simply result in yet further increases in house prices. The housing market is already booming and giving potential house buyers extra cash will only result in housing owners and developers pushing up house prices thus fueling the fire and given very little real gain to the 25-year-olds.
Another flaw in the idea is that £10,000 means a very different amount both geographically and socially. House prices in London are astronomically high but in cities, further north where house prices are more reasonable £10,000 might go a lot further into funding your first home. This would increase housing inequality with some 25-year-olds being able to afford housing whereas others living in other areas won’t be able to. On top of this 25-year-olds coming from a wealthy background won’t need £10,000 to get on the ladder because ‘daddy’ will be able to buy one for them. Not only would it, therefore, be a waste of the government’s money it would also mean that the scheme would not have much impact on reducing social inequality because it gives an equal amount to both rich and poor.
Whilst the scheme might well increase entrepreneurialism in Britain which I admit is lacking at the moment, I feel like there are many more downsides to this policy than there are positives. Encouraging young people to start up businesses could be done through giving specific grants to those that apply for it, meaning no money is wasted on people who wouldn’t make use of them.
Despite what I’ve said, I do feel that this policy is an interesting attempt at solving the housing problem for young adults. This is an issue which definitely needs addressing but for me the idea of giving such a lump sum to every 25 year old in the country and expecting it to fix the housing and education crises is optimistic, to say the least.
