It has been 115 years since David Lloyd George’s famous People’s Budget – one of the most significant budgets seen in British history. Seeing the situation in Britain at the start of the twentieth century, with the continuation of poverty that plagued the Victorian era, the Liberal Chancellor became committed to improving the condition of the people.
Looking to raise the money to fund the Liberal Party’s ambitious social reforms, such as old age pensions, Lloyd George laid at the core of the Budget a rebalancing in the weight of taxation with a closing of the gap in taxation between earned and unearned income, enacting land value taxes, inheritance taxes and a ‘super tax’ for those with excessive incomes of over £700,000 in today’s money.
Unlike in 1909, where it was the elderly who were facing a raw deal, in 2024, it is the young. Today, another bold budget is needed. A Young People’s Budget is crucial for the long-term prosperity of this country, and like in 1909, there ought to be a shift in the burden of taxation from work to wealth.
It is no lie that young people in Britain today are finding it much harder to set foot on the first rung of the ladder towards wealth. They have seen a catastrophic drop in income relative to previous generations. Millennials earned, on average, 8% less at age 30 than their counterparts of the previous generation. Meanwhile, between 2007 and 2022, real median weekly earnings increased by just 2%, according to the Resolution Foundation.
And yet, young people in Britain – who overwhelmingly rely on work for their income – suffer from the regressivity of the current tax system. Indeed, earned income through work is taxed much heavier than unearned income through capital gains, returns from rental property and dividends. As a result, an individual who earns £60,000 per year from capital gains has a lower effective tax rate than an individual earning £35,000 from hard work.
Those who benefit from the current system are almost exclusively older and at the top of the wealth distribution. Just 0.3% of those with an income under £50,000 have taxable gains.
Combine lower relative pay and an unjust tax burden and you restrict access to assets. Homeownership rates for those aged 30-34 dropped dramatically as the price increase of an average home has far exceeded the increase in wages. Now, the house price to income ratio is at its most extreme since 1876.
Younger people without parental wealth to fall back on will be forced into paying a sizable chunk of their income to a landlord for an extended period of time, harming their abilities to start families, be entrepreneurial and save for the future.
That is not to say that Britain has not seen a rise in wealth; it has. There was a £5.9 trillion increase in household wealth between the global financial crisis and the Covid-19 pandemic. But, almost 80% of this increase went to Boomers and Gen X, those who have had easier access to houses and are far more likely to have income from unearned means.
And yet, the Government is focusing policy on the groups that have benefited the most from the increase in household wealth – the triple lock as a case in point – while neglecting those who are in desperate need of a step up. It is imperative that the 2024 Budget focuses on younger generations.
The first step of this should be to, like was done by Lloyd George, reduce the tax gap between earned and unearned income. This would create a far more progressive tax system and one that rewards work more fairly, by allowing for increases in the personal allowance threshold and reducing the tax on work. Reform would allow younger workers to keep more of their hard-earned money and save more towards house deposits, business ventures and put more in their pension pots.
As was the case in 1909, bold solutions are needed. And like Lloyd George’s People’s Budget, the answers lie in rebalancing our tax system. The plight of young people will only start to ease when steps are taken and taxation is rebalanced towards wealth. The nettle must be grasped so that our economy is not one where the only opportunities to acquire property and prosperity come from luck of birth. In doing so, we would, as Lloyd George said, be “placing burdens on the broadest shoulders.”
Thomas Nurcombe is a Researcher at Bright Blue.
Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Papaioannou Kostas]
