Intergenerational fairness in Budget 2024. Liz Emerson, IF Chief Executive, explains the wins and losses for younger generations.
Wages
Good news for young people came with the Chancellor’s decision to accept the Low Pay Commission’s recommendations to increase the National Minimum Wage (NMW) by 6.7% for workers over 21 years of age. The 16.3% hourly rate increase is also welcome for 18-20 year-olds. Less helpful for our youngest workers were the paltry increases in hourly rates for 16-18 year-olds and apprentices who receive just £5.28 an hour.
National Insurance contributions (NICs)
The Chancellor kept her manifesto pledge to not raise NICs nor play with the threshold which currently stands at £12,576 per annum. It means that the country’s lowest earners will not have to pay any contributions but their earnings over £6,396 will count towards the contribution years needed to receive the State Pension
Employers’ NICs will hurt the young
Instead, the Chancellor laid her need to increase tax revenue at the door of employers, raising their rate from 13.8% to 15%. While some may say it is fair that employers should contribute more, IF fears that following these reforms, the tax-take will be less, employers will lower wages, decide not to hire more staff or even get rid of staff completely. Effectively this is a tax on younger people, because in turbulent times, last-in, first-out tends to be the order of the day meaning that younger workers may be shown the door first.
Capital Gains Tax (CGT) increases
An increase in tax revenue from unearned income is something that IF has long called for. Why? It cannot be fair that largely younger workers should pay more in tax from their incomes than those who earn their money from savings and investments – largely older generations. CGT rates will rise depending on whether people are basic rate or higher rate taxpayers. Overall, we think that the Chancellor could have gone further by introducing higher rates or even levying CGT on the massive unearned house value gains made by older generations.
Pension pots and Inheritance Tax (IHT)
This was great news from an IF perspective. In order to understand why we think so, we need to go back to how these pension pots are created. For a basic rate taxpayer, the government (i.e. taxpayers) provide an extra 20% contribution on top of a person’s pension contributions paid into a private pension. For higher rate taxpayers, that rate is 40%. Pension saving is a way of saving to cover living costs in old age. They were never there as a means with which to store wealth and pass it on to descendants tax-free. The reform announced means that some of those taxpayer-funded contributions given over time will return back to HM Treasury when someone passes away. Not all, but a more equitable amount.
We will have to wait and see how people react to the changes. Maybe, on a positive note, some people will turn their pension pots into annuities and spend their pensions in the real economy. That would be good news for retail, hospitality and service industries, by creating more demand, more jobs, and thereby increase tax revenue from more wages.
IHT and the Alternative Investment Market
More good news for intergenerational fairness came with the announcement that the Chancellor is closing a massive loophole in the IHT regime whereby investments in the Alternative Investment Market (AIM) will now attract inheritance tax of 20%. Taxation funds our public services so this is good news if more money can go to schools, education and other services that will invest in younger and future generations.
Second homes levy
We are not against property investment in itself, rather we at IF believe that the returns from property investment should be taxed at the same rate as income from wages. While we would go much further than a 2%–5% increase in Second Homes Stamp Duty Land Tax (SDLT), this reform, at the very least, levels the playing field between first-time buyers and landlords.
Social housing and Right to Buy
Social housing providers have long called for government action to reform Right to Buy so that the stock they build is not sold-off too quickly via Right to Buy (RTB). The nation’s social housing stock should be available to those who need it most and we know at IF that it is children, young people and young families who need genuinely affordable social housing the most. We therefore welcome the Chancellor’s decision to reduce Right to Buy discounts, lengthen the period that tenants live in a property before being able to buy to 10 years and allow local councils to keep 100% of their RTB receipts, thereby providing funds to be able to build more homes more quickly.
Renters
Sadly renters struggling the most have been poorly treated this Budget Day by the Chancellor’s decision not to increase Local Housing Allowance (LHA). Her decision will likely affect those with the least financial resilience – largely younger generations as our Locked Out housing report makes plain. If renters cannot pay their rent, they lose their tenancy, cannot rent elsewhere, their personal debt increases and they possibly end up in temporary housing, all of which costs the public purse more.
Education investment, schools and breakfast clubs
More good news for the nation’s children came with increased funding for schools and schools’ services, rolling out Breakfast Clubs across the country, hiring more teachers and dealing with crumbling buildings.
Pensions and benefits – old win again
Less good news came with the re-confirmation that the Triple Lock on the State Pension will continue during this Parliament. The Triple Lock increased by more than 20% between 2022 and 2024: 3.1%, 10.1% and 8.5% respectively. In April 2025, it will increase by another 4.1% – well above inflation – adding an extra £31 billion in pension liabilities by 2030. Meanwhile, working-age benefits will increase by just 1.7%. The working-age population has felt the cost-of-living crisis the most due to record rents, sky-high mortgage rates, stagnant wages and essential energy, fuel and transport bills. We at IF believe that the government is insulating the wrong group of people when close to one-third of over-65s live in millionaire households (over 3 million out of 12 million).
Trains, planes and Fuel Duty
Trains: Investing in the future infrastructure of the country by updating our crumbling rail infrastructure is a win for younger and future generations. We therefore welcome the government’s decision to continue with HS2, the TransPennine route and East/West Rail.
Planes: The Chancellor could have followed the French and Spanish example and banned domestic aviation under less than 2.5 hours to help the climate crisis. Instead, she increased domestic Air Passenger Duty (APD) by a mere £2. The 50% increase in the Private Jet Tax is welcome on intergenerational justice grounds but is not enough to shame the ultra-rich from churning out Nitrous Oxide into the higher atmosphere.
Fuel Duty: And why has the Chancellor kept the lid on Fuel Duty which hasn’t risen for more than a decade, and was frozen between 2012 and 2022? Surely the scenes of flooding across continents combined with the human and economic costs to economies should have jolted the Chancellor into action?
We have yet to see whether the newly created National Wealth Fund will be more than a Private Finance Initiative (PFI) vehicle for private equity to feed off public services and infrastructure and the devil will be in the detail over how the “annual reporting” to the National Audit Office will prevent a repeat of the collapses of the likes of Carillion or Metronet, with their debts falling back on the British taxpayer to pick up.
Moving in the right direction
So, a mixed budget overall – some wins and losses for younger and future generations – with small steps in the right direction. Our work over the rest of the Parliament will be to cajole, encourage or call out policymakers’ attempts to retreat from a path towards greater intergenerational fairness. We owe it to our children and grandchildren.
Help us to be able to do more
Now that you’ve reached the end of the article, we want to thank you for being interested in IF’s work standing up for younger and future generations. We’re really proud of what we’ve achieved so far. And with your help we can do much more, so please consider helping to make IF more sustainable. You can do so by following this link: Donate.
Image: Thanks to HM Treasury