On this scenario, the Millennial generation would be the frst since records began to do worse over its lifetime than previous generations. A recent report by the Resolution Foundation20 uses data from the UK Annual Survey of Hours and Earnings, adjusted to 2016 prices, to track the median pay of fve generations as they moved through their working lives. Each generation fared substantially better than the previous one until the Millennial generation. The so-called 'Greatest Generation', born around the time of WW1 (1911–1925), came of age in the wake of the deep post-war spending cuts in the mid 1920s which were followed by the Great Recession of 1929–1934 when they were entering the labour market. They beneftted from the recovery in the second half of the 1930s but soon after found themselves fghting in WW2. Theirs was hardly a lucky generation, but they would undoubtedly have done better overall than the previous generation for which we don't have earnings data. These were born at the end of the 19th Century, fought in WW1 during their youth and, if they survived the war and subsequent global fu epidemic, lived most of their adult lives during the recessionary inter-war years, only for many to be faced with another world war in their middle years.

The so-called 'Silent Generation,' born 1926–1945, did considerably better than the previous 'Greatest' generation. The early ones grew up during the war years and subsequent austerity but joined the labour force at the beginning of the economic expansion from the late 1940s. Like the later members of their generation, although to a lesser extent, they saw some of the benefts of the post-war expansion that so advantaged the baby boomers. Their real median salaries in their 50s were around 25 percent higher than those for the previous generation. Then came the baby boomers (born 1945–1965), who saw the largest generational increase in earnings which peaked in their late 40s at about 40 percent more than the median earnings for the previous generation at the same age. Generation X (born 1966–1980) in turn earned considerably more than the previous baby boomer generation in their early careers but as they hit the recession saw their advantage over the boomers vanish by age 40. Lastly come the Millennials, for whom we only have earning data until their late 20s. As the Resolution Foundation analysis shows, at no point in their early life cycle do they do better than the preceding Generation X against whom they loose ground as they approach 30 years at the time of the fnancial crisis. According to the Foundation's analysis the typical Millennial working through their 20s has earned £8000 less than a typical person in generation X.

So far this generation has been the frst since the generation born at the end of the 19th century to start their working lives worse off than the previous generation. Whether they will catch up during their life course depends entirely on the economic conditions they face which we cannot predict with any certainty. However, the current trends look ominous. For the foreseeable future most economists predict as the most likely scenario a long period of slow economic growth in the UK. This results from the UK's long-term problem of slow productivity growth, due to the low levels of company and state investment, and now from the uncertain trading conditions post-Brexit. All of this is in the context of a gradual eastward shift in the centre of gravity of the global economy.21 New technological break-throughs may change this picture in the longer term, but for the Millennials trying to make their way up the earnings ladder after a poor start, the picture looks relatively bleak. At the least it seems possible that in generational terms average Millennial earnings will continue to lag as they move into the early middle age, when catching up may prove very diffcult in a likely context of widespread technologically-driven job loss.

An alterative reading would be that what we are seeing is not so much a generalised shift for an entire cohort, but more of a polarisation of opportunities. The most fortunate of this cohort, with high levels of education in the more elite universities and strong parental support, at least maintain, if not improve on, the real income levels that their parents enjoyed over the life course. But those with lower qualifcations and less social capital have greatly reduced opportunities, and fare much less well than those with similar skills in the previous generation.

The account is lent support by what we know of the long-term changes in the labour market. In the most developed countries, demand for highskilled employees is expanding, although not necessarily quite as fast as the supply of graduates. At the top end of the high-skilled job market, remuneration rises continually, and for the best qualifed amongst graduates, coming from elite universities and with degrees in the most sort after subjects, opportunities get better. Jobs requiring intermediate skills, particularly production and craft skills in the manufacturing sectors, are declining, thus hollowing out the occupational structure. And many of white collar jobs at intermediate skills levels are now taken by graduates unable to fnd work in graduate professions. At the low skills end of the labour market jobs are certainly not disappearing—although many of the more routine jobs are being automated—because many low skilled service jobs, like caring jobs, cannot easily be automated. But in the long term low skilled jobs are in relative decline, and job quality is diminishing. Since the remaining low skilled jobs not subject to automation can now be so easily outsourced to countries with cheaper labour costs, and because those that remain suffer declining protection from state regulation and trade unions, wages and conditions in low skilled sectors continue to deteriorate, particularly in countries with so-called fexible labour markets. So the opportunities for the best and least qualifed continue to diverge.

This scenario does not necessarily suggest that the current generation as a whole will be worse off than their parents through the life course, although opportunities within and between age groups will have become more unequal. However, even if there is no intergenerational life course decline in average earnings, life styles may still deteriorate intergenerationally because other key costs are rising, not least in housing and welfare provision. In the next chapter we look at the intergenerational aspects of the housing crisis. In later chapters we consider the effects of intergenerational transfers in welfare and private pension costs.

#### 62 A. GREEN

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## Britain's Housing Disaster and Its Effects on Young People

No issue has come to defne the Millennial generation, and their blasted hopes, more than housing. For previous generations, going back until the 1970s when the late baby boomers came of age, housing proved to be a major source of wealth accumulation and 'lifestyle mobility', if not for all, then at least for a majority. If social mobility were measured in intergenerational changes in consumer power, then housing asset accumulation would have been counted a major engine of mobility both for baby boomers, and for the X Generation (born 1965–1979) that followed them. For the Millennial generation, by contrast, the protracted housing crisis has proven to be the major barrier to their life chances, and the main symbol of intergenerational declines in opportunity. Whereas young people in the previous generation had an odds on chance of owning a house by the age of 30,1 and if not, of renting decent homes at affordable at prices, for today's young people in many parts of the country, the chances of either are becoming increasingly remote.

The underlying causes of the UK's 'housing disaster'2 are complex and they involve each of the drivers of changing youth opportunities discussed at the outset. Demographics have played their part, since ageing populations increase the demand for housing space, because of the high percentage of older people living alone, many of whom prefer not to downsize their accommodation when one partners dies. Other demographic trends are also contributing to increasing demand. Rising divorce rates and other changes in patterns of family formation and lifestyle choice, have meant than more people live in single-person households

© The Author(s) 2017 A. Green, *The Crisis for Young People*, DOI 10.1007/978-3-319-58547-5\_4 than before (up to 14 percent of the over 16s in 2014).3 Between 1970 and 2005 the population in Britain increased by eight percent while the number of households increased by 30 percent.4 Population growth and the declining size of household units increase the demand for homes.

At the same time fewer new houses are being built. Governments and private developers have both been responsible. An average of 308,000 new homes were completed each year between 1951 and 1984, roughly half of them by local councils. At the peak in 1968, 425,000 new homes were completed. But from the early 1980s councils virtually stopped building and private developers failed to fll the gap. Between 1998 and 2009 on average only 191,000 were completed each year.5 Home building reached a new low in 2012, with less than 100,000 completed, only 31 percent of which for social housing. Local councils built just 2.7 percent of new homes, around 3000, across the UK.6 Building has recovered has only slightly subsequently, with 139,030 new homes completed in the year to June 2016.7

Governments since the 1980s have been increasingly reluctant for the state to be the main supplier of housing and have followed their neoliberal instincts in hoping that the private market would fll the gap. Councils have been obliged to sell existing council homes under Right to Buy and have been prevented from replacing them through caps on their borrowing. After 2007 austerity has made government even more reluctant to fnance the building of new homes. On the other hand, developers have often been more interested in building luxury and higher-priced homes than affordable homes that yield a lower proft. What is more, given the historic tendency for the price of land and houses to rise rapidly, developers will often leave their land under-developed, hoping that prices will go higher, thus increasing their profts when they do build. In July 2016 there were 684,000 unfnished building sites with detailed planning permission and building work had not even started on half of them.8

However, shortage of supply has not necessarily been the only, or even the main, problem. There is more housing space available now per head of population than at any time in history. In 1931 there were an average of 4.2 people for each dwelling. Now there are 2.3. Research by Rebecca Tunstall shows that the average number of rooms available for each person has increased substantially over the years, from one in 1921, to 1.5 in 1971 and 2.4 in 2011.9 According to the 2011 census for England and Wales the average household comprised 5.4 rooms and 2.7 bedrooms, with 2.4 rooms per person and 1.2 bedrooms per person. Oxford University social geographer Danny Dorling estimates there were in total 66 million bedrooms in England and Wales for 55 million people, and that given the number of couples sharing a bed, there would have been a 'surplus' of bedrooms of about 22 million.10 He also calculates that there are currently enough empty properties to house two million people. The Offce for National Statistics (ONS) calculated that there were roughly 27.5 million dwellings (excluding long-term vacant houses) and 26.5 million households in 2013.11

The problem is not so much that we lack housing stock, but that much of it is in the wrong place and the wrong people are buying it, including foreign investor buyers and buy-to-let landlords. Housing generally has become much more unequally distributed. As the Danny Dorling writes: 'The great housing insecurity of our times has been brought about by a minority becoming hoarders of property, and this hoarding has been encouraged by successive governments.'12

Rebecca Tunstall's research shows that housing inequality declined in the middle decades of the 20th century, along with income and wealth inequality generally. In 1921 the richest tenth of households had four times as many rooms per person as poorest tenth, but by 1981 they had three times more.13 However, the distribution of housing become more unequal again after 1980, along with incomes and wealth. The ratio of rooms per person between the top and bottom deciles increased from 3:1 in 1981 to 3.7:1 in 2001 and to 5:1 in 2011.14 Growing inequality in access to housing space was not only made possible by increasing income and wealth inequality generally, which allowed richer people to buy very large houses, way in excess of their needs, and for quite a substantial proportion of adults to own second homes (17 percent in the UK at the last count). It was also encouraged by policies amongst successive governments which promoted the idea that housing was a proftable market for speculation, as much as a means to fulfll human needs for shelter, privacy and comfort.

There have been tax privileges for home ownership going back many decades. Until it was cut back in the 1980s and fnally abolished in 2000, individual home ownership was strongly encouraged by the provision of tax relief on mortgage interest (MIRAS in its last incarnation). However, what has happened since then is that tax privileges have been directed towards those buying multiple homes to rent for proft. Buy-tolet landlords have received special tax and mortgage terms which have greatly increased the proftability of renting out properties as a business, so that the returns to investing in properties for rent now greatly exceed the normal return on the stock market. A 2014 report by Paragon, one of Britain's leading buy-to-let lenders, found that since 1996 investment in buy-to-let properties had averaged an annual rate of return of 16 percent, far outstripping the return on shares and bonds at 6.8 and 6.5 percent respectively.15 Even without rents, returns to housing investment have outpaced the average returns to FTSE100 companies over the past 20 years by 7.3 percent compared with 6.3 percent.16 In fact the increase in the value of property generally has so far exceeded that of the stock market, that Martin Weale estimates that property is now 50 percent over valued compared with stocks.17

In addition, housing remains one of the few capital assets that is not subject to capital gains tax (CGT). It is true that second homes are nominally subject to CGT on sale, but the rules are so easily evaded by multiple home owners switching houses temporally—to classify second as frst homes before selling—that the provision is more honoured in the breach than the observance. In conjunction with the de-regulation of the private rental market since the 1980s, which makes the exploitation of tenants by landlords much easier, all this has greatly encouraged the notion that investing in residential property is for proft rather than for personal needs. The fnancialisation of the mortgage lending market since the mid 1980s, with the de-mutualisation of building societies, and the globalisation and de-regulation of banking generally, has also under-written the process of transforming residential property from a matter of home ownership to fnancial speculation.18 A new class of landlords has grown on the back of this. According to Savills, landlords with mortgages now have more housing market equity than owner-occupiers with mortgages.19

The result of all this has been a seemingly inexorable rise in house prices. Between 1983 and 2007, just before the bubble burst, nominal house prices had risen by a multiple of six, many times faster than wages.20 For young people buying in the years between 1970 and 1990, frst-time buyer home prices had been, on average, at an affordable 2.4 times their average incomes. For those buying between 1997 and 2009 the ratio had risen to a quite unaffordable 3.41 to 1.21 By 2016 the average home was costing almost eight times average earnings and twice that ratio in London.22 At their peak in 2007, just before the crash, mortgages for frst time buyers were at 3.4 times their average income (suggesting purchasing prices, which generally exceed loans, at almost 4:1). By 2010 the average deposit was at £56,000, roughly double the average wage.23 Those who could get mortgages, not surprisingly, tended to borrow at very high loan to value ratios (median advances were at 90 percent LTV), and many had to resort to 'interest-only' deals to make their mortgage payments affordable (24 percent of all loans), thus diminishing their home ownership status to a more secure form of renting.24

The effect of all this has been to put home ownership increasingly out of reach for most young people. Not surprisingly, fewer and fewer are buying houses. In 1990, 50 percent of home owners were under 35 year old age. Just 20 years later this fraction had dropped to 29 percent.25 In 1985, 34 percent of under 25s were already home-owners. This dropped to 19 percent by 2005. Among 25–29 year olds, owner occupation rates were down from 62 percent at their peak in 1985 to 46 percent 20 years later. By 2007 the mean age of frst time buyers had risen to 32 and 37 for those without parental assistance.26 Owner occupation amongst the under 30s was already a minority experience by 2007 but it was likely to become even rarer in the years to come. According to the projections produced by the Joseph Rowntree Foundation, the total number of 18–30 year olds owning their own homes is likely to drop from 2.4 million in 2008 to 1.3 million by 2020. Whereas around 35 percent of 18–30s owned their homes in 1997, only about 25 percent did so in 2008. By 2020 that proportion is predicted to drop to around 12 percent.27

If buying has become near impossible for most young people, other alternatives, whether they be social housing or private renting, are equally problematic. Social housing has been declining remorselessly for three decades. In 1980 local councils provided accommodation for 31 percent of the country's households. After the 1980 Housing Act, much of this stock was sold off (at 40–60 percent below market value) under the Right to Buy initiative. With much reduced central government funding for council house building in the ensuing years, councils replaced very few of the 1.85 million council houses sold off,28 so that by 2008 council tenants made up only 16 percent of households.29 Housing Association provision failed to take up the slack. The result has been ever lengthening waiting lists for council housing. Young people are least likely to qualify for these occupancies, unless they have dependent children, because they have not had time to advance themselves up the queue, so not many of them get access to this dwindling stock of affordable housing. Whilst 14 percent of 18–30 year olds were in some form of social housing in 1997, only nine percent were so in 2015.30

The remaining alternative for young people leaving home has been privately rented accommodation in a sector which had grown rapidly, not least as a result of fnancial crisis and subsequent restraints on home loans.31 The proportion of young people renting in the private sector has thus increased substantially, from around 12 percent in 1997, to 28 percent in 2015, and it is projected to rise to 33 percent by 2020.32 In many countries with better regulated private rental markets this might not be such a bad thing. But the problem for young people forced to rent privately in the UK it that the sector is less regulated than in almost any other country in Europe.33 Consequently, tenures are insecure, housing quality is often poor, and prices are often excessively high.

According to the National Housing Federation the cost of renting rose a massive 37 percent in the fve years to 2012, and it has been going up at a rapid rate since then.34 In London in 2012 rents rose eight times faster than incomes. By 2012, average monthly rents had reached £744 nationally and £1102 in London. They have continued to rise in London and other cities in southern in England at an astronomical rate. Recent hotspots have been southern university towns like Brighton and Bristol, where rents rose by an average 18 percent in 2015 alone.35 Many young people are having to spend so much on rent that saving for a deposit an impossibility. Data for 2014/2015 from the English Household Survey show average private tenants paying over half of their household incomes on rent.36 For young people with lower earnings the proportion would be even higher.

But the high costs of renting are not the only problem. Despite the sky-high rents, the quality of properties is often very poor, with many properties reported as not safe for human habitation. Amongst those interviewed by the British Household Panel Survey in the early 2000s, those in privately rented accommodation were more than twice as likely as owner occupiers to report problems with condensation, lack of adequate heating and damp.37 Buy-to-let landlords typically have small property portfolios which they maintain alongside other jobs. They are thus part-time and essentially amateurs in the role of renting accommodation, typically knowing less about landlord/tenant law and tenants' rights than traditional landlords.38 Unfortunately, a proportion of them fail to keep their properties in good repair and at a standard ft for tenants and evidence is emerging that this is increasingly common. The Migrants' Rights Network claims that Ealing may have as many as 60,000 occupants in illegal structures, and Slough, reportedly, has up to 6000 'beds in sheds'. Recently we have seen the rise of 'rent-to-rent' which in some cities is becoming synonymous with multi-occupancy in poor quality dwellings.39

According to a recent investigation by Shelter, offcial complaints against landlords to local authorities rose by 27 percent in the three years to 2012, with a total of 85,000 complaints in the last of those years.40 Of those complaints, 62 percent were about serious and life-threatening hazards. Tenants most frequently complain of landlords refusing to make necessary repairs. However, when tenants do complain they can fnd themselves subject to 'revenge evictions' by landlords who presume they can always fnd another tenant, who will probably pay an even higher rent. The number of evictions by a private landlord has risen by 60 percent over fve years from 2010/2011 to 37,000 annually. Over the same period, as the 2016 'Monitoring Poverty and Social Exclusion' report points out, mortgage repossessions have fallen to from 23,000 to 3300.41

Not the least amongst the problems faced by renters in the private sector is the extreme level of insecurity they face. Since the de-regulation of the privately rented sector in the 1980s, landlords have been free to evict tenants after a year, in practice for any reason they wish. John Major's 1996 Housing Act introduced the Assured Shorthold Tenancy, allowing tenants and landlord to give notice after just six months. As a result private landlords, spurred on by their agents, have come to believe that they should raise their rents annually and tenants, unable able afford another rent hike, frequently end up moving within the year. The length of tenure amongst those who have the freedom to choose is typically about seven years. The median stay in a dwelling for owner-occupiers is 7.1 years and that for social renters 7.8. In contrast, the median private tenant stays only 1.7 years before moving on.42 The increasing precariousness of tenures amongst private renters has been associated with higher levels of 'risk' and uncertainty and with associated threats to wellbeing and health.43 Indeed, the most commonly cited source of the relationship between housing tenure and ill-health in the academic literature is 'ontological insecurity'—the feeling of being unsafe in their world.44

For many young people, who still dream of owning their own homes, this is a no-win situation. More and more decide to stay living in the family home, so that they can at least save towards a mortgage deposit. Others, the so-called 'boomerang children,' end up returning to live with their parents after failed attempts at independent living in the private rental jungle. By 2011, 29 percent of males aged 20–34s and 18 percent of women were still living in the parental home.45 Those who do prolong residence in the family home are more likely to have parents who own houses, and have the space to accommodate them, or alternatively, to have insuffcient income to rent privately. Surveys report that they are also more likely to say they are delaying entering long-term relationships and starting families because they can't get their own accommodation.

The current housing crisis, which shows no signs of abating, represents the biggest single barrier to young people getting on with their lives and taking the traditional steps towards adult status. At one level it is a vivid example of the delaying of transitions for young people, and many young people perceive it this way and still hope to be owning homes before too long. A MORI poll in 2016 found that 80 percent of 25–34 year olds would like to be owner occupiers in fve years time, if they had the choice, a similar proportion to all adults.46 However, for many their hopes are unlikely to be fulflled. Today's young people will carry the burdens of the dysfunctional housing market bequeathed by previous generations with them throughout their lives. The majority may never own their own homes at all, if current trends in declining home ownership continue.

Those that do manage to get on the ladder, will take longer to pay off their mortgages and thus be saddled with higher debts into late middle age, just when they need to be saving for their retirement on meagre pensions. The lucky ones will have inherited from their parents or been gifted funds to buy homes when they were younger. But this is a minority of all young people, with just 27 percent of frst-time buyers getting help from family and friends in raising the deposit for a mortgage.47 Older people are increasingly having to down-size their homes to release equity to pay for health care or to fund their longer retirements. By the end of the 2000s, 30–50,000 properties were being sold each year to pay for care, while 160,000 houses were left in estates annually.48 Only one in six parents were leaving a house to their children, which suggests that no more than one third of the children's generation were benefting, and then in most cases not until their middle age. When the current generation of young people reach middle age their parents homes will be even more valuable than they are now, but less of that value will be passed on because more of the parents will have 'spent the inheritance.'49

Britain's disastrous housing system is undoubtedly at the heart problem of intergenerational inequalities. The baby boomers and, to a lesser extent, the Xers who followed them, were hugely fortunate as generations. They bought houses when they were relatively cheap, many of them council houses at highly discounted rates; the older ones saw their mortgage burdens ease rapidly in the infationary 1970s; and they ending up owning valuable properties which they could use as collateral for more borrowing and spending in middle age. Many of them could sit back and watch their property wealth rise inexorably, increasing by more each year than they were earning from work. Indeed in the South East of England in 2015 house prices were still rising annually by an average £29,000—by almost £5000 more than average pay.50

The scale of this money making machine was surreal. The value of the 18 million or so homes in the UK rose on average by about £100,000 in the seven years preceding the fnancial crisis.51 If 15 million of their owners were owner-occupiers throughout the decade their collective housing assets would have grown by about £1.5 trillion. That sum was roughly equivalent to our annual GDP and considerably more than the UK public debt. Even netting out for infation and home improvement costs you can estimate private gains of over one trillion pounds in that decade alone.52 These gains were not going to young people, since in 2008 the under 35s owned just 3.2 percent of Britain's £2.9 tn of housing stock.53 These property gains therefore represents a transfer of wealth from the future generation of home-buyers to the existing 35 plus generation of home owners in the order of magnitude of the 2008 UK GDP in just seven years.

The intergenerational imbalances do not stop there. The infated rents paid by young people today are mostly going to older adults. About two million adults now act as landlords.53 Many of these are buy-to-let investors, who took 13 percent of all mortgages granted in 2012. Of these investors, 58 percent were aged 46–65. On the other hand, over half of all private renters are estimated to be under 35 years.54 If Britain is fast returning to an age of rentier capitalism, last seen in the Edwardian era, as Thomas Piketty maintains, it is the older generations who form the core of this new class of landlords. And they have been aided and abetted by governments which under-regulate the private rental market; spend in excess of £27 bn on housing benefts, much of it going to private landlords, and until 2016, gave special tax privileges to buy-to-let landlords.

With over-heated housing markets, and returns on investment way above the stock market average, the incentives for this new breed of amateur landlords are huge. But unfortunately for younger people they are hiking house prices further, at the same time as reducing the quality and security of rented accommodation, since it is the amateur landlords who are least likely to maintain properties. They are also more likely to want to give notice to tenants because when you own just a couple of properties you are more likely to want to take back your small rented property at short notice, either because a member of your family suddenly needs housing, or for your own use, because fnances have got a bit tight, or to perform the temporary address switch that people with second homes regularly make to avoid paying capital gains tax on the sale of a second home.

### Intergenerational Decline Meets Social Class Polarisation

Of all the domains in which young people see their opportunities restricted, housing represents the most serious, and the one which most clearly represents a growing gap between generations in life time opportunities. As they grow older most young people may well catch up with their parents' generation in terms of jobs and earnings. Yet in housing, we are witnessing a genuine divergence in intergenerational fortunes, which will almost certainly affect the majority of the young generation throughout their lifetimes. However, at the same time this generational decline is cross-cut by growing class divisions amongst young people. Housing opportunities are becoming increasingly polarised by social class and social background. In England, where homeownership has been a major vehicle for social mobility for two post-war generations, class polarisation in housing opportunities now works to reduce it.

Analysis of the trends in housing tenure during the medium term show quite clearly that we are experiencing both a substantial social class polarisation in access to the most desirable forms of housing, as well as an overall intergenerational decline. Our own analysis of the trends between 1991 and 2013, using the data from the British Household Panel Survey and its successor Understanding Society, shows not only how far the patterns of tenure amongst young people have changed in recent decades, but also how this has affected young people in all occupational groups. It also shows a stark polarisation in tenure patterns by social group and social background.

Between 1991 and 2013 the proportion of young people aged 18–34 in England owning their own homes almost halved, declining from 46 to 25 percent (See Fig. 4.1). The proportion who were social renters also declined, from 15 to 12 percent. At the same time the proportion living with parent(s) rose from 29 to 42 percent, and proportion renting privately increased from ten to 21 percent. Most of the decline in home ownership

**Fig. 4.1** Trends in proportion of 18–34 year olds in England in different tenures, 1991, 2001, 2013. *Source* Calculations from British Household Panel Survey/UK Household Longitudinal Study data: Weighted estimates

happened after 2001, with those who would formerly have bought homes now staying in the parental home or renting privately.

The decline in home ownership amongst young people affected all socio-economic groups. Taking 18 to 34s—refecting the fact that the most now cannot buy home until their 30s—Fig. 4.2 shows that all groups have experienced declines between 1991 and 2013, mostly occurring in the 2000s. The proportion of young people in professional and associate professional jobs who owned their home dropped by 26 percentage points over this 22 year period, with only half being owners by the end. For those employed in non-graduate jobs the declines were even greater: around 38 percentage points for those employed in skilled (manual or non manual) jobs and 39 percentage points for those in semi- and unskilled jobs. Less than a quarter in the latter category owned their own homes by 2013. The declines in home ownership for those in skilled and semi- and unskilled jobs appear to have started earlier than for those in professional jobs, being apparent already by 2001 when professional home ownership still maintained its 1991 level. However, the decline in home ownership for young professionals was particularly sharp during the house price boom years after 2001 and by 2013 all groups of young people had substantially less chance of owning a home than 22 years previously.

However, whilst this is a generational issue, with all social groups amongst todays' young people less likely to be owners than the earlier

**Fig. 4.2** Trends in proportion of home owners by occupational class for 25–34 year olds, 1991, 2001 and 2013. *Source* Calculations from British Household Panel Survey/UK Household Longitudinal Study data: Weighted estimates

generation at the same age, it is also a manifestation of growing inequality. Figure 4.3 shows for different years the odds ratios for owning a house of professionals and associate professionals, and those in skilled jobs, compared with those in semi- and unskilled jobs. In 1991, compared with young people in semi- and unskilled jobs, professionals were 1.85 times as likely to own a home and those in skilled jobs were 1.65 times as likely. By 2013 the odds ratios had increased substantially so that, compared with young people in semi- and unskilled jobs, those in professional jobs were now 3.35 times as likely to own a home and those in skilled jobs 1.78 times as likely. Inequality in home ownership increased across the whole class social spectrum but particularly at the top end.

During the same period, the effect of social background on the chances of young people in England owning a home also increased substantially. Figure 4.4 shows the trends in the odds ratios for owning a home of young people with parents in different occupational groups (when the children were 14 years old). In 1991, compared with young people with parents in semi- and unskilled jobs, those with parents in professional and associate professional jobs were 1.44 times as likely to own a home, and those with parents in skilled jobs were 1.34 times as likely. By 2013, those with parents in skilled jobs were now 1.55 times as likely to own a home as those with parents in semi- and unskilled jobs. The increase over time in the odds ratio was even larger for those from more privileged backgrounds. By 2013, young people whose parents had professional jobs were now 2.39 times as likely to own a home as those whose parents had semi- or unskilled jobs. The estimates for 2001 are not signifcant, but since the changing patterns of home ownership

**Fig. 4.3** Trends in odds ratios for owning accommodation amongst 25–34s by occupational class. *Source* Calculations from British Household Panel Survey/ UK Household Longitudinal Study data: Weighted estimates. The odds ratios are computed cross-sectionally on the three waves of BHPS-UKHLS : 1991, 2001 and 2013. *Note* \*Means that the estimated odds ratio is not signifcant at the 95 percent confdence level

**Fig. 4.4** Trends in odds ratios for owning a home amongst 24–34s in England by parental occupational class. *Source* Calculations from British Household Panel Survey/UK Household Longitudinal Study data: Weighted estimates. The odds ratios are computed cross-sectionally on three waves of the BHPS-UKHLS survey, for years 1991, 2001 and 2013. *Note* \*Means that the estimated odds ratio is not signifcant at the 95 percent confdence level

occurred mostly in the 2000s we may assume that these changes in home social background effects on home ownership happened mostly in that period as well.

During a two-decade period when the relative benefts of home owning, compared with renting, have never been bigger, both in terms of quality of tenure and wealth accumulation, we have seen inequalities in housing opportunities almost double between children of professional and semi- and unskilled families. The possibility to own a home is increasingly limited to the third or so of young people from better-off families who inherit or get substantial help with their mortgage deposits. For the rest the chances of home ownership are very low.

As housing mobility has declined, so the gaps in ownership between young people in different social classes has increased. And this sharp increase in housing tenure inequality which we observe amongst todays' young people is likely to persist as their cohort grows older. Indeed, it may well increase as those on higher incomes who have not yet been able to buy a home by age 34 fnally manage to get on the housing ladder in middle age, some with help from parental gifts or inheritances, while a large proportion of those on lower incomes, often without the beneft of parental gifts or inheritances, remain permanently excluded. So the housing opportunities for a whole generation, through its life course, will have become more unequal than for the preceding generation during its lifetime.

But growing housing inequality remains only one part of the story of intergenerational changes in housing opportunities. The other side is that a whole generation, throughout its lifetime, will have a worse experience of housing than their parents' generation had. Each socio-economic group will have had to wait longer on average to own a home and the chances of doing so at any age will have declined. Those who succeed amongst the current generation will have had to pay more to buy a home than their parents did, and the price they pay will have a been fnancial bonus to their parents' generation, which they will be unlikely to inherit in full since their parents will often have used this to fund retirement and care in older age. Because the current generation who buy homes are having to pay such high prices, they will also be burdened with higher debts than their parents throughout most of their lifetimes, which will limit consumption capacity and lifestyle options even when they achieve incomes at comparable levels to their parents in time.

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## Wealth and Welfare: Breaking the Generational Contract

The opportunities open to today's young people through their lifetimes will depend to a large extent on their prospects in employment and housing. They will assess their fortunes as a generation by how much they can earn and consume relative to the parent's generation, and also by the quality of housing they can afford compared with their parents. These two constitute a major part of what we think of when we compare lifestyle opportunities between generations. However, they are by no means the only factors which determine how one generation fares compared with other generations. Equally important are wealth and how the costs and benefts of state welfare are distributed across age groups and generations.

### Wealth

Wealth represents the most visible overall measure by which individuals and families compare themselves with each other and by which we compare different groups in society. It gives access to many of those things which people consider as part of a desirable lifestyle. Both in the media and in society more generally, wealth signifes status and well-being, perhaps more so than at any time since the Edwardian era in Britain. No wonder for the popularity of the recent television drama, Downton Abbey, which chronicles the fortunes of the rich (and their servants) from its apogee in the years before the First World War, to the relative declines after World War Two. The story of the dwindling fortunes of

© The Author(s) 2017 A. Green, *The Crisis for Young People*, DOI 10.1007/978-3-319-58547-5\_5 post-war aristocrats, and the parallel rise of the working class, is, in many ways, well captured, but it is no doubt the sheer scale of opulence of the rich in their glory days which most captivates. As Thomas Piketty has shown, the tables have since turned again, with the rich both more wealthy and more differentiated from the rest than at any time since the frst decade of the last century.

Wealth in the UK is very unequally distributed—much more so in fact than earnings or household incomes—and the gaps have been growing since the late 1980s or earlier (depending on which defnitions and sources you use). Currently, the top ten percent own more than 100 times the wealth of the least affuent ten percent.1 According to the data from the ONS Wealth and Assets Survey in 2006/2008, the most reliable source we have, the least wealthy half of households had nine percent of total wealth, whereas the wealthiest 20 percent had 62 percent. Financial wealth is the most unequally distributed, with the wealthiest 20 percent owning 84 percent of assets and least wealthy half owned just one percent.2 But residential property wealth is also very unequally spread around. Because wealth is mostly inherited not earned—almost three quarters of it currently in the UK—and because substantial inheritance benefts relatively few, it is much more unequally distributed than incomes. The usual measure of the inequality in how things are distributed, the Gini coeffcient, would be 100 where just one person owned everything and nought where everyone had equal amounts of wealth. The Gini coeffcient for total net household wealth, calculated from the 2006–2008 Wealth and Assets Survey, is 61—almost double that for net household income which, taking into account the size of households, currently stands at 36.3

We don't know by exactly how much wealth inequality has risen in recent years: the Wealth and Assets Survey does not provide data on trends in wealth distribution. However, we do know that it has been rising. Piketty's broad brush decennial historical estimates show the share of wealth of the top ten percent in Britain declining substantially for most of the 20th century, from 90 percent in 1910 to around 62 percent in 1975, and then rising again to 70 percent in 2010.4 The more recent data come partly from HMRC fgures on the size of probated estates. These tend to under-estimate inequality because they do not include gifts made more than seven years before death which, being exempt from inheritance tax, represent a common way for those with assets to pass them on to their children. Even so, they suggest that wealth has become much more unequally distributed since 1990. Between 1976 and 1990 there was a small and uneven trend towards lower wealth inequality, although with a spike in 1987 (as measured by the Gini coeffcient for 'personal marketable wealth' since the source is individual estates on death). However, since 1991 there has been a substantial increase, with the Gini coeffcient rising from 63 to 71 percent in 2002 (before dropping back again to 67 percent in the following year).5 The overall trend towards rising wealth inequality since 1990 is partly due to the increase in inequality in housing wealth.

Also growing are the inequalities in wealth between different age groups. Wealth is typically accumulated throughout the lifecycle, as individuals gain more possessions, accumulate more in housing assets and savings, and grow their pension entitlements. So older age groups are always wealthier than younger ones, at least until people retire. According to the 2010 report of the National Equality Panel, median household wealth for households with reference persons aged 25–34 was £66,000, compared with £416,000 for those with reference persons aged 54–64 and £172,000 for those with reference persons aged 85 plus. There is, of course, also considerable inequality of wealth within each age group. Amongst the 50–64 age group the bottom ten percent have less than £28,000 on average whereas top ten percent have more than £1.3 million. But the age group differences are equally marked and are also growing. According to Bank of England estimates, between 1995 and 2005 the median net household wealth (not including pensions) of those aged 25–34 dropped 69 percent, from £3000 to £950. For those aged 35–44 it increased by 230 percent from £22,788 to £54,475; for 55–64s by 298 percent from £50,000 to £149,500 and for those over 65 by 241 percent from £39,500 to £95,500.6

One of the main reason for this growing inequality of wealth between age groups is housing. The age groups with the largest gains in wealth during the period, the 35–44s and the over 65s, are also the age groups with the largest share of gross housing wealth. Of a total of £3.16 trillion worth of gross national housing assets, the under 35s owned 11 percent, the 35–44s 22 percent and the over 65s 26 percent. We can also see the relationship in the differences in the wealth of people with different housing tenures. In 2006/2008 the median total wealth of outright home owners was £410,000, compared with £269,700 for mortgagees, £24,600 for private tenants and £17,500 for social tenants.7 The gap between housing rich and housing poor is increasing even as more in the middle have become home owners.8 This also increases the wealth gaps between the young and older people.

Furthermore inheritance does not seem to be compensating for the rising age inequality in wealth due to housing inequality. HMRC data on probated estates shows that the annual number of estates including housing assets declined between 1969/1970 (149,592) and 1992/1993 (142,446). This is partly because the cohort that own more houses are not yet dying. People aged 30 in 1980 were still only 66 in 2016. The major increase in housing wealth in estates is unlikely to come for another ten years. Also, while it is true that many older people with housing assets are passing part of them on as gifts, it is also true that many baby boomers are 'spending the inheritance' before they die, in many cases to pay for their growing health and social care bills. Inheritance does not compensate the young generation as a whole for its diminishing assets and those that it does beneft are a minority.

According to a 2004 Joseph Rowntree Foundation report 54 percent of those surveyed had never inherited, and of those that did only 11 percent received an inheritance which included property. While over half of home owners had received an inheritance at some point in their lives, less than a third of tenants had. Only 28 percent of those in social class E inherited with only 15 percent receiving more than £10,000.9 A more recent report from the Institute for Fiscal Studies notes that elderly households are becoming more wealthy. Among households where all members are 80 or over, average non-pension wealth in 2012–2013 was £230,000 compared with £160,000 for the same age group in 2002–2003. However this wealth is very unevenly distributed with the top half of households holding 90 percent of this wealth. Hence, only the 'lucky' half of the children's generation will be inheriting most of the wealth from the older generation.10 As the report comments, these trends mean that inherited wealth is likely to play an increasingly important part in the life chances of the younger generation. At the same time it looks likely to increase inequalities within this generation with serious negative consequences for social mobility.

As the age-related inequalities in home ownership increase in the coming years, so will the age-related gaps in wealth overall. The declining size of private pensions accruing to younger generations will also add to this effect if we include pension wealth as part of overall total. On current trends, with the gradual eclipse of fnal salary pension schemes and, in fact, the erosion of private pensions per se, the next generation of young people can expect to be poorer relative to older generations even than today's youth. To what extent does this indicate a lifetime intergenerational decline in wealth and is the trend likely to continue for future generations?

If, as Piketty argues, private wealth is still growing in relation to the overall economy, then it seems unlikely, on current trends, that over their lifetimes the Millennials will amass less wealth overall than their parents' generation, unless of, course, GDP declines. It will just become more and more unequally distributed, across and within age groups. On the other hand, if baby boomers spend more of their wealth in old age, and if policy makers were to decide that the public debt was unsustainable and had to be paid off through large increases in taxation on private wealth and incomes, the Millennial generation could fnd itself less wealthy than the previous generation through their life course. This all depends on public policy and particularly on policies relating to taxation and social transfers.

### Intergenerational Transfers

David Willetts estimated (for 2009) that governments currently spent around £125 billion pa in welfare on those over 65 (£50 billion in health care and £75 billion in state pensions). By contrast it spent about £80 billion on people under 18 (£50 billion on education an the rest on child benefts and tax credits). The fow goes increasingly towards the old rather than to the young. The over 60s currently get three quarters of all public spending on benefts. The Treasury's long-term spending projections show the proportion of spending on age-related benefts rising from 20.1 percent of GDP in 2007/2008 to 26.6 percent in 2057/2058. As the current 20s age group reaches their 40s, when they pay most tax, their tax burden may have increased very substantially. Those born in the 2017 will enter their 40s in 2057 by which time total age related government spending may have grown as a proportion of GDP by six percentage points. This suggests much higher taxation for the coming generation when they reach their prime earning years.

Welfare states are designed to smooth the risks over the life course, and they generally involve adults of working age being net contributors and the young and the old being net benefciaries. However, as populations age, the age-related imbalances tend to get larger, with those in their prime working years being obliged to pay more taxes to fund the health care and state pensions of a larger elderly population. Agerelated inequalities in net contribution to the welfare system would have increased, but lifetimes costs and benefts for different generations might not have changed. The so-called generational contract over the welfare state would still be in place. However, if the current young generation make larger contributions in taxes to the welfare state than previous generations in their prime years, but fail to get the same benefts when they retire, the intergenerational contract begins to break down, and a gap will have opened up in the lifetime welfare benefts of two generations.

Historical estimates by London School of Economics social policy expert, John Hills, of what past generations have put in and taken out, does suggest that some generations do better than others. Those born between 1901 and 1921, when the welfare state was just getting established, are estimated to have taken out between 115 and 122 percent of what they put in. Then the balance evened out until the baby boomers. The late baby boomers born between 1956 and 1961 are forecast to get out from the welfare state 118 percent of what they put in.11 As Willetts suggests, the young people today are likely to be generational losers. This will almost certainly be the case in terms of private pensions, since they will be paying higher contributions during their prime years to fund the growing costs of the relatively generous pensions held by many of their parents' generation. But they themselves may only receive a pittance in retirement from their own 'defned contribution' occupational pensions schemes, if indeed they have them, which many will not. The relatively generous 'defned beneft' pensions schemes of the past are fast becoming extinct, dropping from fve million in 1995 to only 500,000 now.12

A similar generational inequality may apply in relation to state benefts, as Willetts suggests, since it seems highly unlikely that governments will be able to retain current real-terms levels of spending per retiree on state pensions and healthcare when the number of pensioners reaches one third of the population. There is already growing debate about the so-called 'triple lock' on pensions, which ensures that these always rise faster than incomes and prices. Treasury predictions for the next 40 years suggest that with current policies public spending grows by 4.9 percent of GDP, and this is without factoring in population increases. The estimated costs of NHS rise from fve percent of GDP in 1990 to ten percent in 2040. Half of the NHS budget is spent on pensioners, so on these predictions, pensioners' healthcare alone could take up fve percent of GDP by 2040.

Is the generational inequality in net contributions to the welfare state limited to a once off imbalance between the baby boomer generation and the later Millennial generation? Willetts's focus is certainly here. However, other projections based on so-called 'generational accounting', suggest that the generational inequalities will not stop there. National Institute of Economic and Social Research economists, McCarthy, Sefton and Weale, produced a set of generational accounts in 2011 which calculated 'the net life-time contribution, positive or negative, that people, as a function of their age, are expected to make to the Exchequer.'13 Receipts include both welfare benefts and public consumption, which they allocate as far as possible by age. Payments are largely comprised of taxes. The net lifetime contributions of each generation are the total of what they are predicted to contribute in taxes minus what they take out in benefts and public services. The projection assumed that government policies agreed by June 2010 were implemented; that the economy, and therefore per capita tax revenues, grows at an average of two percent per annum; and that real interest rates average at three percent. The population is assumed to continue growing and ageing until 2058, whereafter it stabilises.

The models shows the gap between revenue and expenditure (excluding interest payment on Government debt), expressed as a percentage of GDP, closing from 2008 until 2018 and then increasing to 2058, mainly due to the increases in age-related expenditure with an aging population. The projected net contributions of different generations continues to increase long into the future. The average for those not yet born in 2008 (£159,668) is markedly higher than for those aged 25 (the Millennial generation born 1983) (£124,486), which is much higher in turn compared with those aged 65 (baby boomers born 1945), who make a negative net contribution (−£223,183). According to the model, in order for future generations to receive the same net benefts as those born in 2008, taxes would have had to have risen by 15.4 percent from 2010, and even then the baby boomer generation, with declining tax liabilities, would have done much better than those born in 2008 or after. Given that we now know that taxes did not rise by this amount, and that plans for the elimination of the budget defcit by 2018 have now been abandoned, these projections of ongoing intergenerational inequalities are likely to be conservative.

These are predictions, estimated on the basis of 2010 policies and population projections, and, even if the population estimates prove accurate, policies may, of course, change. However, on the current trends, it does seem highly likely that the Millennials' and the generations coming after' will end up contributing much more to the welfare state than they take out over their lifetimes, whereas the baby boomer generation will take out more than it contributed. Taking account of the generational transfers occurring through housing markets and private pensions, only partially offset by inheritances, this will amount to a very substantial inequity between these generations over the life course. The intergenerational welfare contract will have broken down.

86 A. GREEN

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/ by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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## Policies for Intergenerational Equity: (1) Education and Work

Policies for reducing intergenerational and age-related inequality potentially span all the domains discussed in this book. They can be applied in education, work, housing and in relation to welfare costs and benefts. For many people they must reach further still, including into the political domain. Reducing the voting age to 16, for instance, is supported by three of the major political parties in England, including, Labour, the Liberal Democrats and the Greens, with an active campaign in support by the Electoral Reform Society and the Votes at 16 Coalition. Not least important amongst the arguments in favour is that it would help reduce the growing demographic imbalance in electoral politics. To discuss the full range of relevant policies, however, would require a book in itself. In all policy debates the devil is in the detail, and the details cannot be rapidly glossed. This chapter concentrates only on policies for education and transitions to work, and the next on housing. They take housing because this is area where intergenerational inequality is most marked and education because it is amenable, at least in some areas, to some relatively simple policy reforms which would make a difference.

The education systems in the UK are not the primary cause of mounting intergenerational inequality. In fact, as we saw in Chap. 3, education remains one area where young people feel they are better off than their parents were. They have several years longer in school and get higher qualifcations than their parents did. We have some of the very best universities in the world, with the system generally performing better than ever in the international league tables, and we punch above our weight

© The Author(s) 2017 A. Green, *The Crisis for Young People*, DOI 10.1007/978-3-319-58547-5\_6 in the contribution that HE makes to research and innovation. Britain is still a world leader in innovation, despite the relatively low investment in Research and Development,1 and this is largely down to the excellence of our university research. The school A level examination system, whatever else its faults, is very effective in preparing young people for more specialised higher education studies. A level graduates have a head start, for instance, against the average high school graduate in the US who starts university education with rather little specialist disciplinary knowledge.

But there is one major problem with the education systems in the UK which has, arguably, got worse for the younger generation. Our systems produce very unequal skills outcomes, and are doing very little, if anything, to improve our comparatively low and stalling levels of social mobility.2 These failures pertain across the UK, but since Scotland, Wales and Northern Ireland have separate education systems, we concentrate in the policy discussion here on the predominant part—the system in England.

This education system in England has always been highly diverse and fragmented, and many would say it is becoming less like a system all the time. With the relentless promotion since the 1980s of a market-oriented agenda of school choice, diversity and competition, we have regressed in some ways to the educational voluntarism of the 19th century. This prized school diversity and independence above all else, but educational provision in England then lagged well behind what was available in other advanced states in terms of universalism and inclusiveness.3 Contemporary testimony to English educational backwardness in the 19th century is ample. From the declaration of the Select Committee in 1818 'that England is the worst educated country in Europe', to Balfour's assertion in 1902 that 'England is behind all continental rivals in education', contemporary debates were littered with comparisons with European systems, almost invariably to England's detriment.4 In terms of inclusiveness in education we are in danger of becoming once again a laggard in European education.

The evidence of our relatively high levels of inequality is very clear from the cross-national data on educational qualifcations and skills, considered in Chap. 2. Inequality in educational attainments (in terms of highest qualifcations achieved) has reduced over the years but is still higher amongst 25–34 years olds in England than in all but three of the OECD countries in the Survey of Adult Skills (Spain, Italy and Northern Ireland).5 Inequality in skills opportunities and outcomes is relatively high, though not extreme, at 15 years, according to the results of successive PISA surveys. Inequality of outcomes can be measured by the degree of variation in student scores. The UK ranked 11th out of 34 OECD countries on this measure for literacy in the 2009 PISA survey.6 Inequality of skills opportunity can be measured by the impact of social background on achievement. On this measure the UK ranked 7th most unequal of the OECD countries.7 But things seem to get relatively worse during the upper secondary and higher education stages.8 Most shocking is the level of skills inequality amongst young adults revealed in the SAS. Amongst 25–29 year olds, England has the highest inequality in skills outcomes (measured this time in skills Gini Coeffcients) of all countries in the tests for Numeracy and the second highest for Literacy (after the US).9 On the social gradient measure of inequalities in skills opportunities the story is no better. Amongst 16–24 year olds England ranks 2nd highest in both Numeracy and Literacy on inequality of opportunity (only behind the Slovak Republic).10 On all of these measures we fnd greater inequality in skills amongst young people than amongst those aged 55–64. So, unless there are substantial improvements during the life course, which is unlikely, inequalities in skills, unlike in education levels, are getting worse in each generation.

These very high levels of skills inequality matter—for two reasons. Firstly, because skills inequality contributes to wage inequality which is in turn associated with all sorts of negative social consequences.11 Extreme levels of inequality in earnings and incomes not only represent a major challenge to social cohesion; they are also associated with negative social outcomes across a range of domains, from public health and wellbeing, to social trust, political engagement, social mobility and crime.12 Skills inequality probably also infuences national economic performance, since countries with more unequal skills also tend to have lower average levels of skill and consequently reduced labour productivity.13 The second reason is that most of the inequality in skills is concentrated at the bottom end of the achievement scale, where the variation across countries is the highest. This takes us back to that third of young people who, as we saw in Chap. 2, fail to complete full upper secondary education and therefore lack a full Level 3 qualifcation, now considered the minimum across the OECD for successful participation in the labour market. This is the most vulnerable section of our young people and the one that is almost certainly going to fare very much worse in employment over the life course than its equivalents in the parents' generation. So what can be done to improve the performance of the education system with respect to this key group?

The answers with regard to early years learning are perhaps most straightforward. Raising attendance rates in pre-school education is essential to reducing the social gaps in skills which arise early in the lives of children. Most commentators and policy-makers agree on this.14 Governments balk at the costs of extending entitlements to subsidised pre-school education to children from two years onwards, even though research shows it will probably nearly pay for itself in the longer term by raising the productivity and taxes paid of both mothers and children.15 Nevertheless, substantial improvements have been made in these areas which will no doubt reduce inequality in skills of older children in the longer term. We just need to take this further, so that subsidies for preschool education can be extended to two year olds, particularly to those from families on low incomes.

### Reducing Inequality in Lower Secondary Education

The biggest challenge lies in what to do with lower secondary schooling where large inequalities stubbornly persist despite the various reforms in the New Labour era to improve the performance of lower achieving children and schools.16 The relatively high inequalities in secondary schools in the UK can be partly attributed to our high levels of income inequality, which disadvantages poorer families while allowing better-off parents to buy better schooling for their children, either in private schools or by moving to more expensive areas with the better state schools. However, this is not the whole story. OECD cross-country analyses of the PISA data on 15-year olds' skills show only a weak correlation between income inequality and inequality of education opportunity at the country level. In fact, as the OECD report on equity concludes: 'the evidence suggests that, in general, cross-national differences in inequalities of performance are associated more closely with the characteristics of the education system than with underlying social inequalities or measures of economic development.'17

The dominant position within current cross-country research on school systems and skills inequality is that more unequal outcomes are likely to occur when there is early selection to differentiated tracks and types of school; a higher proportion of privately funded schools; a lack of standardisation in curricula and assessment; and a federal system where funding is devolved to the regional level.18 According to this research, early tracking increases inequality as combined peer effects and school effects raise aspirations amongst students in high status tracks and schools and depress aspirations amongst students in lower status tracks and schools.19 Schools which are entirely privately funded, and have high fees, promote inequality as families with high incomes can buy higher-quality education for their children in schools with smaller class sizes, better resources and better-paid teachers. Lack of standardisation in curricula and assessment systems promotes inequality because school practises become more differentiated according to the social and ability composition of their intakes, thus exacerbating variation in school and peer effects across schools.20

The UK suffers from all of these problems. We have a substantial proportion of fully private schools which are, because of their very high fees, almost uniquely elitist amongst systems of private and semi-private schools across the world. We have different education systems in the various nations of the UK which adds to overall UK inequalities. And our school system in England is anything but standardised. While the state school system is notionally non-selective and comprehensive, in practice it is becoming increasingly selective and tracked. Over the past 30 years an obsession with school choice and diversity, and competition between schools, has led to the creation of multiple types of secondary school with different governance and funding, admissions procedures and curriculum priorities. The current list includes free schools, faith schools, studio schools, university technical colleges and academies of various kinds, including sponsored academies, chain academies (ARK, ULT, AET, etc.) and converter academies. Providers include charities, foundations, social enterprises, faith and community groups and private education businesses. These schools are still publicly funded, and controlled, to different degrees, by the state, but the sense of an integrated public system with a public purpose is disappearing. Local Education Authorities have been eviscerated and local planning eroded. Theresa May's plans for a new wave of grammar schools will only add to the problem.

Many of these initiatives have been undertaken in the name of improving standards for children from poorer families in less affuent areas. And there have been some successes, notably recently in standards in London's schools. Improvements here may be partly due to the generally strong and improving performance of the increasing number of children from immigrant families. It may also be in part due to the encouragement of cooperation between schools through initiatives such as New Labour's London Challenge. But across the whole system it is hard to see how educational inequalities can be reduced by a proliferation of different types of school and increasing fragmentation of the school system. Certainly the cross-national evidence does not support this.

There is no evidence that increasing differentiation and competition between schools improves overall standards,21 although giving schools more autonomy in professional areas (like pedagogy and the curriculum) has been associated with better results in some studies.22 The education systems in Europe which have most equal educational and skills outcomes, and the smallest social gaps in achievement, are in the Nordic countries. These countries all have private or semi-private school sectors, but the schools are relatively un-elitist because they are state subsidised and charge low fees. The state sectors all operate with non-selective, allthrough primary/secondary comprehensive schools. School choice policies have been adopted in some areas, notably in Swedish cities where they have been associated with rising inequality,23 but overall parents do little school choosing. There are various reasons for this: sparsely populated rural areas offer little choice of schools; all-through schools discourage changes of school at the end of the primary phase; and schools tend to be very similar anyway. The key to the relatively low inequality in Nordic systems lies in the low differentiation between schools. Schools tend to be similar both in the social balance of their intakes and in their average performance levels.24 The two are connected.

In most countries the educational achievement of children is infuenced less by their social background than by the nature of the school they attend and the children they go to school with. OECD analyses show that over one third of all the variation in individual student performance in PISA tests across the OECD can be attributed to differences in average school performance, and the school characteristic which most infuences school performance is the nature of its intake.25 Based on PISA 2006 data, OECD calculates that in most OECD countries the social intake of the school 'far outweighs the effects of the individual students' socio-economic background' on student scores.26 The social composition of the school has such a large impact because it affects everything else about the school, including what are referred to as 'peer effects' and 'school effects'—meaning the impact of other children and of the school ethos. Across all the OECD countries, the social intake of the school (measured by the educational and occupational level of parents) explains about 55 percent of the difference in average performance between schools. However, in some countries, including in Luxembourg, the UK, the US and New Zealand, the proportion is much higher, in the UK case 77 percent. This compares within 23 percent in Finland and 26 percent in Norway.

Educational and skills outcomes in England are very unequal, in part because schools vary so much in the social mix of their intakes, which are much more differentiated than in Scotland, for instance.27 Intake differences exacerbate differences in school norms and drive up inequalities in outcomes. But how do you change this? Nordic countries, except perhaps Sweden, are fairly homogeneous societies with relatively low levels of inequality. But England's populations, particularly in the large cities, are extremely diverse and income inequality is higher. How can the school system be designed so that it creates less inequality in this context? A number of structural changes are theoretically possible.

We could roll back the diversity and choice agenda, which has so far produced no evidence of raising average levels of achievement or reducing inequality. According to the OECD's commentary on England's performance in the latest (2015) PISA survey, standards, at least in English, Maths and Science, have fat-lined for a decade. This would mean reversing the proliferation of school types and abolishing the myriad distinctions between faith schools, academics, local authority community schools and so on. Local authorities could be given back responsibility for school admissions and instructed to reduce inequalities in school intakes by introducing the 'banding' system which, under the former Inner London Education Authority, required each school to have a balance of pupils of different levels of prior achievement. School catchment areas could also be re-introduced across the board, with local authorities being required to review and, if necessary, redraw their boundaries regularly. Denmark already operates such a system. This would help to avoid the post-code lottery which allows residential segregation by social class and ethnicity to skew school intakes and concentrate a disproportionate number of minority ethnic and second language speaking children in particular schools. Recent research by Demos, for instance, shows that 50 percent of non-white students are in schools where minority ethnic students are in a majority. As the Government commissioned Casey Review points out, this cannot be good for integration and social cohesion.28

Other measures could be adopted which have been seen to work in other European and Asian countries. School heads and teachers could be rotated between schools, as happens in Japan, to equalise resource distribution between schools.29 Private schools could be integrated into the state sector, either as 11–18 schools or as Sixth Form Colleges' as in most European countries: given suffcient autonomy to provide pedagogically and confessionally distinctive forms of education for those who want it, but with low, state-subsidised fees to make them accessible to a wider range of students. Distinctive school specialisms in state schools could be maintained, but admissions policies would not allow school specialisms to justify selection in admissions based on academic achievement.

More radical still would be to abolish the outdated distinction between secondary schools with and without sixth forms, since this represents one of the biggest divides between secondary schools. Traditionally, the sixth form has been regarded a key marker of a good secondary school and schools without one are often seen as second class. Current Government policy is that all new academies should have sixth forms, so we are moving in he direction of giving all schools sixth forms. However, the school sixth form is often an expensive and ineffective way of providing universal upper secondary education. School sixth forms are rarely big enough to sustain a wide range of subjects so they often neglect the creative arts, technical subjects and less popular foreign languages. They tend to focus on a narrow range of academic subjects that do not appeal to all young people.

Sixth-form and tertiary colleges, on the other hand, have been highly successful and very popular. Their A level results are on average ten percent better than those of sixth forms in state secondary schools, and their students are more likely to progress to Russell Group universities and universities generally.30 Many young people prefer to progress at 16 to a new institution with a more adult environment. Unfortunately, there are currently only 93 of them country-wide and only one in fve teenagers live within fve miles of one. Sixth-Form Colleges feel under threat because of the forward march of academies with sixth forms. Many parents with children in schools with sixth forms defend them vigorously, but that is partly due to the lack of good alternatives in their area. Much more rational and effcient than proliferating new academies with small sixth forms would be to introduce—gradually—an institutional break at 15/16, as in most other European and East Asian countries. We should create a dedicated upper secondary system of sixth-form colleges and FE colleges. Sixth-form colleges would provide the comprehensive academic and technical curriculum for 16–18 year olds in every area. FE colleges should be rationalised and more centralised, providing the full range of 16–18 provision but focusing more on the specialised technical areas which relate to local industries and which require expensive equipment to deliver the curriculum.

All of these changes would be administratively possible, although not necessarily popular in schools which have seen incessant short-term reforms over a period of 30 years. Much would need to be done to keep teachers and heads on board, even though many might in principle agree with the aims. Restoring New Labour's successful school renovation programme, *Building Schools for the Future*, which was controversially scrapped by the former Coalition Government's Education Secretary, Michael Gove, would no doubt provide a useful tonic. A concerted effort to restore the status of teaching as a profession would also help. The main challenge, though, would be to develop a political vision for education which prioritised the equalisation of opportunities and outcomes, and which brought parents together to support the means to do this. After many years of policy moving in the opposite direction this would not be easy.

### Reforming Upper Secondary Education and Training

Reforming upper secondary education and training may be easier than changing lower secondary education because just about everyone agrees it is failing, most notably because of the absence of a strong vocational provision within it. The system has an absurdly complex structure of providers, courses and qualifcations. This confuses young people, parents and employers, and deprives this phase of education of the normative standards which are essential for encouraging achievement and reducing inequality. We not only have sixth-forms, in all the various types of secondary school; we also have Sixth-Form Colleges, Tertiary Colleges, Further Education Colleges, and an army of private training providers, some charitable and not-for-proft foundations and other for-proft. The recent Sainsbury Review was not able to say how many of these there are, but noted that they account for 30 percent of the adult skills budget.31 Courses on offer vary hugely in duration, standard and quality and there is no common core of learning across all the different courses and programmes.

In the absence of a proper national qualifcation system, England uniquely amongst nations—operates a market in educational qualifcations. This has produced a dense jungle of awards which no-one understands, least of all the students or the employers who use them for recruitment. In 2015 there were offcially over 21,000 vocational qualifcations on Ofqual's Register of Regulated Qualifcations, excluding GCSEs and A levels. These were offered by 158 different awarding organisations. Of these awards over 12,000 were eligible for public funding for teaching to 16–18 year olds. An individual aiming for a future in plumbing, for example, could choose between 33 qualifcations offered at three different levels by fve different awarding organisations.32 Because of the Byzantine complexity of this under-regulated vocational market in providers, programmes and qualifcations, there is an overall lack of transparency in the sector which undermines its credibility and value. The programmes on offer vary too much in content and quality and many of the qualifcations awarded are worthless on the labour market, as we saw in Chap. 2.

The over-arching aim of any systemic reform to our upper secondary education must be to create a set of academic and vocational pathways for young people that are all comprehensible and valued; which have transparent standards and which lead to more predictable destinations in the labour market or to higher levels of education and training. A break at 15/16, with a new and simplifed institutional structure with dedicated upper secondary institutions would be the most rational way of organising the system, but might not be essential. The main point would be to reduce and clarify the pathways and qualifcations, so that there was greater standardisation with regard to the duration, content and quality of the different programmes on offer. A strong argument can be made in favour of a normative three-year duration for upper secondary programmes, to bring students up to the standard in other countries which mostly have three-year upper secondary programmes. A common core of Maths and English—and possibly Civics—with structured work placements on vocational courses, should be mandatory for all programmes. The Sainsbury Review goes some way in this direction, although it sticks with the two-year programme as the norm. The Governments' Green Paper on industrial strategy33 foats the idea of a new Transition Year at school for lower achieving students, but this would be demoralising for those at the end of lower secondary school and it would be better to incorporate the additional year into upper-secondary education.

The Review recommends a set of 15 main technical pathways at the upper secondary level, with a nod towards the Scandinavian countries which have a similar arrangement. The organising principle behind the pathways is the notion of the skilled occupation, broadly defned, as in the German concept of the *Beruf.* The Review rightly argues that technical education should be occupationally-based since this is what provides its value on the labour market. That means avoiding the weakness of previous arrangements whereby vocational qualifcations were either too general to serve as a preparation for entry to jobs, as with the now defunct General National Vocational Qualifcations, or too job- and frmspecifc, as with many NVQs, to serve as initial occupational training for young people. Confusingly, the Review still organises the technical programmes around sectors, rather than occupations existing across sectors. Nevertheless, within each sectorally-defned pathway there would be options which would be increasingly specifc to occupations and occupational clusters as students progressed through their programmes. These occupational designations would appear on certifcates awarded, along with details of work placements completed, and this would give employers a clearer idea of what the award holder could do.

Technical pathways in upper secondary education need to be offered in both work-based modes and college-based modes, but these need to be integrated within a single system. Britain will never create the encompassing set of high quality Dual System apprenticeships taken by upwards of 40 percent of young people in countries like Austria, Germany and Switzerland. We had such a system for ten years or so after the 1964 Industrial Training Act, but the social partnership and sectoral infrastructure on which it was based has now been demolished and can't easily be re-created. Nevertheless, apprenticeships can still have a place in upper secondary provision if organised on the hybrid model, as adopted in countries like Denmark, Netherlands and Singapore, where the state plays the coordinating role, and where employment-based apprenticeships are combined with college-based apprenticeships. Even countries like Germany are having to adopt a similar plurality of modes now with the shortfall in employer-offered apprentice contracts.

Our current apprenticeships are moving in this direction but their design is still full of faws. Some are very good, but many are too short and most do not lead beyond Level 2 qualifcations. This defeats the whole objective of the apprenticeship which is to prepare young people for skilled work at craft and technician levels (for which they need to be qualifed at Level 3 or Level 4). Absurdly, most apprenticeships now are taken by those already employed who are over 19 years of age. The situation has occurred because the regulations allow it, and because employers take advantage of the Government subsidies to place existing employees, who already have many of the skills to gain qualifcations, on apprentice contracts. A mere six percent of 16–18 year olds are currently taking apprenticeships.34 This situation has to change. Apprenticeships should be primarily for young people and must lead toward skilled craft and technician level qualifcations. New government measures to specify minimum levels of off-the-job training and duration of programmes, and to require attainment of prescribed standards in English and Maths, are moving in the right direction, but much more needs to be done to make the system credible and ft for purpose.

Because apprenticeships are never likely to provide the main pathway for technical education for young people we need an alternative of high quality, college-based technical provision. The pathways, as advocated by the Sainsbury Review, should be aligned with the apprenticeship, sharing skills standards and a common core curriculum, and leading to the same overarching qualifcations, just as occurs in France with the CAP qualifcations taken by both apprentices in centres d'apprentissage and by vocational students in the Lycée Professionnel. Their delivery modes, however, would be different. Instead of the on-the-job learning enjoyed by apprentices, college-based technical students would need to undertake structured work placements. The Sainsbury Review recommends that the placements should be prepared in advance and monitored by their college lecturers. Students would keep a log of their activities and what they had learned, and employers would provide a report, both of which necessary for successful completion. Colleges would receive additional funds of around £500 for each placement. A new system of national technical awards would be developed under the aegis of the new Institute for Apprenticeship which would convene expert panels to determine the skills standards relevant for each occupational branch of each award. All of this makes a lot of sense. However, in crucial respects it does not go far enough.

Firstly, work placements are envisaged to last for about four to six weeks. This is far too short for the work placement to be a credible substitute for the on-the-job experience of the apprentice. In France the equivalent would be the 'stage' which typically lasts six months or more. The objection to longer placements would be the diffculty of fnding employers to provide them. Indeed our FE colleges, which in recent years have lost many of their networks with local employers, might fnd this diffcult. But a rationalisation of college provision, currently underway with the so called Area Reviews, might make this feasible again. Colleges should be encouraged to re-develop their sectoral specialisms, which foster the close links with local employers that would make extended work placements for technical students more feasible. Whether the Government needs to set up yet another kind of institution—like the Institutes of Technology proposed in the Green Paper—needs more thought. Re-purposing further education colleges, many of which are excellent, might be more effective.

Secondly, the proposed new state-led system of technical qualifcations still falls short of the full national system it aspires to. The Institute of Apprenticeship and Technical Education—a proposed Government agency which would develop occupational standards and have oversight over the qualifcation system—is comprised of 'experts' working in an independent capacity; college organisations, trades unions and professional associations are not represented as of right, although they may be called upon. There is no mention of the volume of labour market research that might be needed to develop these standards. This is a German-style BIBB lite. The BIBB (Federal Institute for Vocational Education and Training) in Germany, which develops the skills standards for occupational qualifcations, employs some 600 people, many of them researchers. Representatives of employers, trade unions, Germany's federal states and the federal government work together on the BIBB Board. The institutional set-up recognizes that developing occupational standards is a complicated business in which many different parties have legitimate interests. The proposed slim-line Institute of Apprenticeship cannot conceivably perform the same function itself.

Instead, the Sainsbury Review recommends that it puts contracts for developing occupational standards out to tender. In a similar way, private awarding bodies will be invited to become sole providers of awards in each technical area. But it will still be private bodies who will be awarding 'national' certifcates. And this will not solve the problem of standards being eroded by private awarding bodies offering 'easier' qualifcations to increase their market share. In this case they will just be competing for market share with different awarding bodies offering qualifcations in other technical areas, rather than alternative qualifcations for the same occupation. The Review makes a strong case for putting the state in charge of national qualifcations, but then in practice brings the market back in to develop and award qualifcations.

The ambivalence about state and market runs through the report. There is the constant and familiar refrain about an 'employer-led system'. Then follows a powerful advocacy of state responsibility for the overall qualifcation system. This is a misconceived dualism. If they are to be coherent and credible, national qualifcations need be awarded by the state, not by private bodies. Employers, professional associations and trades unions all need to be centrally involved in the process, but their various views and interests should be concerted through a representative body convened by the state.

While moving in the right direction, the recommendations for achieving higher standards of literacy and numeracy amongst vocational students lack bite. Requiring students on technical courses to reach a specifed minimum standard in Maths and English to achieve their certifcates, as is now the case on apprenticeships, is essential, and has been standard practice in most countries. How this will be achieved is barely discussed and colleges are to be left to decide how to organise the learning in these areas. The learning of English and Maths should be geared towards requirements of the technical subjects of the programmes in question. This already happens in colleges. The problem is how to raise the profle of these areas of the vocational curriculum. Establishing dedicated curriculum areas, and indeed even dedicated classes with specifed minimum hours, is one possibility. But the bigger issue is how to raise the standard of teaching. Much of the English and Maths teaching in colleges is undertaken by lecturers who are not specialists in the subjects and who have not been trained to teach them. Driving up the standards in these core subjects would require giving them much more prominence in the curriculum and also hiring many more specialist lecturers. Class contact hours on vocational courses also need to be reviewed. At present, vocational students in colleges often have far fewer hours in the classroom or workshop than the typical A level student in a sixth-form college. French Level 3 vocational students typically spend 30–36 hours per week in the classroom or workshop, on courses that last three years. In England vocational students often have only half this level of teacher contact and their courses are shorter. If we want our vocational students to reach the standards achieved in other countries, we will have to invest much more in giving them the time to do so.

### Tertiary Education

Tertiary education in England also needs some major reforms. We have succeeded in raising participation in university higher education to near 50 percent, which is a considerable achievement. But arguably too many are now going into general university higher education while too few take higher-level technical tertiary courses. The supply of university-trained graduates is beginning to outstrip demand for graduate skills in the labour market and the returns to bachelors degrees are likely to decline, if they have not already done so. The wage premium for graduates has held up in most countries—graduates are still likely over their lifetimes to have higher employment rates and to earn more than non-graduates in most countries. Nevertheless, graduate pay in real terms is declining in many countries and the wage premium is either reducing or becoming more diversifed by course and university.35 Increasing yet further the proportion studying general university degrees, as the Government plans to do with its lifting of the cap on university undergraduate numbers, will only the increase the number of young people graduating with high levels of debt but little chance of fnding graduate jobs. They will feel cheated by a system that has promised them high rewards for investing so much in university education but fails to deliver in terms of jobs. This is already happening in the US, where there is rising discontent amongst graduates who have paid high fees to attend less prestigious private universities whose degrees, they discover, are not worth much. Despite this, young people in England still increasingly apply for university higher education courses, despite the debts they will accumulate and the uncertain prospects they will face. But this is partly because there are no good alternatives to university-based tertiary education.

Technical tertiary education, which once fourished in our FE colleges and the former polytechnics, has virtually collapsed. The Higher National Diploma (HND) and Higher National Certifcate (HNC) used to be highly regarded technician-level qualifcations. Many young people and employed adults studied for them in colleges and polytechnics, either full- or part-time, and they provided an important avenue for career progression, allowing former apprentices and skilled workers advancement into technical, supervisory and management roles. Yet in 2014/2015 only just over 33,000 were enrolled for these courses, mostly in colleges, and the overwhelming majority in Business Studies. No more than 2.5 percent of university undergraduates were enrolled. Foundation Degrees, a more recent innovation in shorter vocational tertiary provision, dating from 2000, initially did well, recruiting over 80,000 students by 2008/2009.36 However, the numbers participating declined sharply after the caps on undergraduate numbers were relaxed by Government, with only just over two percent of HE undergraduates now taking these courses. The two main vocational alternatives to 3-year bachelor degrees now enrol just 3.7 percent of undergraduates in HE.

The atrophy of technical tertiary education means the loss of an important avenue for mobility for young people in England. In many of the world's richer countries technical tertiary education is well established and delivers good labour market prospects for young people. OECD analysis of data from 2011 shows that men in OECD countries with short-cycle vocational tertiary education earn on average 26 percent more than those with only upper secondary education, and women 32 percent more. The average return is lower than for Type A higher education, but not by much, and it may be considerably higher for those with lower levels of tertiary attainment and skills. A number of countries have well attended and highly respected technical tertiary education routes, either based in Universities or in other dedicated vocational tertiary institutions. Germany has its technical universities (Facchoschulen) which specialise in applied science and technical degrees, all at the bachelor level, as well as other institutions offering shorter tertiary vocational provision. The Netherlands, likewise, has polytechnics and higher vocational schools offering vocational tertiary provision at various levels. France has over 100 IUTs (Instituts Universitaires de Technologie) which are based in universities and offer two-year degrees in technical subjects. Singapore has developed a large polytechnic sector which enrols over 40 percent of young people on three-year programmes leading to technical qualifcations equivalent to the UK's Higher National Diplomas. Interestingly, in this case, the polytechnics recruit young people straight from lower secondary schools, fast-tracking them to short-cycle degree standards by the age of 19 (or older if their studies are interrupted by national service). In all these countries, degrees from these sectors are generally well esteemed and offer good labour market destinations.

So why has this type of provision declined so rapidly in the UK? Part of the answer lies in the fact that we have removed the cap on student numbers on bachelors programmes in HE. Universities have the opportunity to recruit as many as they can onto the high-fee-charging bachelors courses. Prospective students have been led to believe that bachelors degrees offer the best labour market prospects and they tend to chose this option in favour of shorter and less expensive short-cycle degrees despite the higher costs, because their student loans cover the fees which need not be re-paid until later. The perceived prestige attached to the bachelor's degree seems to outweigh the benefts of the lower student debt which would result from taking a shorter degree. This cannot be the whole of the answer, however, because short-cycle technical tertiary education was not that popular even before loans were introduced and caps removed. The fact is that we have not invested enough in technical tertiary education and have not made it attractive enough to prospective students.

A large and effective tertiary sector was created by Singapore's Government from the 1980s, as that country was upgrading its economy from one based on low-cost assembly to advanced, high skills manufacturing.37 High enrolments were achieved in the polytechnics partly as a result of the stringent limits placed on university admissions. In the early days only a quarter of the school-leaving cohort was allowed attend university. However, the Government also invested massively in the new polytechnic sector, building fve new state-of-the-art polytechnic campuses. The new polytechnics boasted exceptionally high quality buildings and learning environments, with extensive IT-based learning, fully computerised lecture theatres, and advanced facilities and equipment for learning manufacturing skills. The latter included fully automated small manufacturing plants with robotic CNC machines and automatic conveyancing. You won't fnd many FE colleges in England with similar facilities, even now.38

Britain needs to re-balance its tertiary education provision if we are to avoid producing a surplus of graduates with high levels of debt and poor employment prospects. Creating an attractive range of short-cycle technical degrees in colleges and universities would make an important contribution to this. To achieve this we need to restore the caps of student numbers in bachelors programmes and invest more in developing the curricula and facilities for these technical programmes. We also need to change the funding incentives so that universities and colleges invest in high quality short-cycle degrees.

Policy-makers also need to look again at the conditions in the labour market for students and young graduates. In many ways young employees and job-seekers are at the sharp of globalisation. Because they are new to the labour market, and the least protected by tenure and unions, they are the frst to experience any new employment trend that seeks to increase 'labour fexibility' as a way for employers to reduce operating costs. The latest manifestations of this are the proliferation of unpaid internships and 'zero-hours' contracts. Both are currently on a sharp upward curve. Zero-hours contracts are becoming endemic to the socalled gig-economy, but also elsewhere. Uber and Deliveroo are just the tip of the iceberg.

Firms favour so-called the zero-hours contracts because it allows them maximum fexibility—and therefore lower costs—in deploying labour. Increasingly they are engaging people to provide services on an ostensibly 'self-employed basis' so that they can get away with minimum hourly rates and avoid paying national insurance contributions and holiday pay. But, as tribunals and courts are now beginning to acknowledge, their workers are in reality employees. They are bound to accept whatever tasks their employers give them, have little discretion over how to perform them, and are frequently denied the right to work for another employer.

Unpaid internships are also becoming an increasingly common means for exploiting young people. Periods of unpaid work experience, as part of organised study programmes, or undertaken privately for short periods to gain a sense of working life in a particularly industry, are legitimate. The employers gain little in productive output. But internships which are not part of study programmes, or which are undertaken privately, but exceed a month in duration, should count as employment and be subject to employment law and living wage legislation. In both cases, with zero-hours contracts and internships, employer evasion of standard employment rights should be stopped.

### Student Finance

Lastly' there is the vexed question of student fnance. The current system of fees and loans is unsupportable and is heading for a big crash. It's morally indefensible because it is encouraging a whole generation of young people to acquire huge debts which they will be paying off through much of their adult lives while also paying historically high proportions of their incomes on rent or mortgages. And it is highly inequitable for two reasons. Firstly' because one generation is paying for a service which previous generations have had for free. And secondly' because tuition fees are much the same for all courses. Once over the earnings threshold of £21'000 pa' and until loans are written off 30 years later' graduates pay back the full loan plus interest for fees which were virtually the same for each course' irrespective of what it is worth on the labour market. The income level at which they start to repay can be changed by Government and is now being lowered.

The other problem with the system is that it has proved to be very expensive and promises to get more so. The Institute for Fiscal Studies (IFS) estimate that' given the proportion of graduates not earning enough to pay back their loans in full' taxpayers will end up paying 43 percent of the value of loans.39 With rises in tuition charges resulting from the removal of fee caps' and including other Government support packages for teacher training and broadening access to higher education' the long-run public costs of the current system would be £24'592 per full-time student and £7.4 bn in total per year for full-time students in England.40

The current mess in the fnancing higher education could have been avoided. There was always a simpler and more equitable solution available in the form of an all-age graduate tax. This could be designed as an additional income tax of' say' 2.5 percent' levied on all Englishdomiciled graduates who received subsidised undergraduate education in English universities and are earning above £21'000 pa (the current loan repayment threshold). Neither of the reports on higher education fnance by Dearing and Browne41 gave serious thought to a graduate tax. UK university leaders were always against it' because it meant relying on governments for most of their funding. They preferred to have the money direct from fees (which in time they could regulate). Nor would the scheme have been popular amongst graduates who had beneftted from tuition-free higher education. But the effciency and equity arguments for such a tax are unimpeachable.

The tax would be simple to levy through the HMRC self-assessment system. A small number of graduates might avoid it for periods by working abroad' but the number of these would be much lower than the proportion in the current system who will not pay back their loans. The tax would meet the government's own principle that students should contribute substantially towards the cost of a higher education from which they have beneftted fnancially. And it would be much fairer than the current system. Graduates would pay back in proportion to their earnings which derive' at least in part' from the value of the particular courses they had taken and the degrees they had acquired. A small extra tax on graduate earnings could raise a substantial part of the annual costs of frst degree higher education.

Some rough estimates of the sums involved in England suggest the feasibility of such a system. In 2016 there were some 6.3 million Englishdomiciled graduates' aged 20 to 64 and in employment' who were likely to have received subsidised frst degree education in England' having been born in England or elsewhere in the EEA and arriving in England before the age of 21. Of these' 74 percent were earning over £21'000 pa' with mean earnings in this group of £43'500 and taxable pay of £32'500.42 An all-age graduate tax of 2.5 percent on this group would currently yield an average annual graduate tax payment of £812 per person and just under £3.8bn in total annual tax revenue. The total cost in English universities of full- and part-time frst degree undergraduate study for students domiciled in England or born in non-UK EU countries including university costs and maintenance costs—can be estimated to be £11.8 bn.43 The all-age graduate tax would cover around 32 percent of these total costs' with a taxpayer annual subsidy of around £8 bn.

The annual public cost of this system would be comparable to that of the current system of fees and loans. The IFS estimate that the taxpayer subsidies for undergraduate education for full-time students in England—including loan subsidies' teaching grants and maintenance grants—was £7.4 bn pa (at 2014 prices). We can estimate that at 2016 prices' and including part-time students' the public costs in 2016 were over £8.25 bn pa' somewhat above that under the proposed graduate tax.44 An additional boost to the 2015 level of maintenance grants' raising the maximum to' say' £5'000 pa' would bring the public subsidy under a graduate tax to a similar level as the current subsidy.45

Writing off student loans' and replacing them with a graduate tax and enhanced maintenance grants' leaves the current taxpayer subsidy for undergraduate education largely unchanged. However' it represents an immediate additional revenue for the Government which is currently paying the full cost of tuition fees by funding the loans issued by the Student Loan Company and which will not see the loans repaid for many years. Over the longer term' all-age graduate taxes will also generate increasing annual tax revenue. Even assuming that HE participation rates soon peak' the proportion of graduates in the labour force will continue rising until 2067 when the current cohort of 18 year olds—with 48 percent participation rates in HE—reach retirement age. By this time nearly half the labour force will be graduates and' even allowing for some decline in the graduate employment rate' there would be some 50 percent more graduate employees liable for the graduate tax than in 2017' with a proportionate increase in the revenue from the tax.

Over the long term the public subsidy required when fnancing higher education through an all-age graduate tax should be lower than that through loans. However' the greatest advantage of this system is that the tax payments would impact far less on the current generation of graduates than loan repayments do' particularly between the ages of 25 and 50 when fnancial burdens are highest. Under the current system graduates earning over £21'000 pay back their loans at nine percent of their earnings over £21'000 until their remaining loans are written off 30 years later. For those on average earnings for this group this amounts to repayments of £2,025 pa' compared with the £812 pa that would be paid in graduate tax.

Typical graduate annual repayments under the current loan system are two to three times higher than they would be under a graduate tax and the gap will grow as the caps on fees are lifted and average tuition fees rise. Under the proposed graduate tax' governments would be likely to resist paying higher tuition subsidies to universities' and graduate contributions through the graduate tax would remain stable in real terms. Direct public funding of higher education for undergraduates would also avoid the growth in inequality in access to high quality undergraduate courses which would arise with the increasing differentiation of fees resulting from the lifting of the fee caps.

It would have been diffcult to win political support for such a tax ten years ago' before fees and loans had been introduced. Now that we know all the negative consequences of those reforms' not least to current and future generations of young people starting life with huge debts' the graduate tax might be considered in more favourable terms. The case should certainly be argued. There are few measures that would more visibly improve intergenerational equity.

108 A. GREEN

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## Policies for Intergenerational Equity Two: Housing

The only response to Britain's housing crisis on which nearly everyone is agreed, at least in principle, is on the need to increase the supply of homes. On most estimates, we need to build some 250,000–300,000 new homes a year to keep pace with the rising demand for housing units.1 This would restore home building to its historic levels in the 30 years after World War Two, trebling the rate of new building in recent years. The questions are: what is holding back building now; what kind of homes do we need and where; and who should be building them.

The Government blames the low rate of building on restrictive local planning regulations, the slow 'build-out' of sites with planning permission and the lack of competition amongst the major building companies. Its latest White Paper, *Fixing our Broken Housing Market*, 2 aims to boost construction through a new £3 bn fund for small building frms, relaxation of local planning regulations, and by putting additional pressure on local authorities and neighbourhoods to draw up ambitious new plans for development. They are relying primarily on incentives to private developers to double their current rate of building. However, private developers are never going to deliver enough new homes at affordable prices. It is in their interest to hoard land, keep supply restricted and prices high. They will certainly not deliver on the Government's 2015 Manifesto promise—missing in the White Paper—to deliver 225,000 new 'affordable homes' in this Parliament.

In recent years the record of governments in delivering homes at affordable prices has been dismal. According to government fgures,

© The Author(s) 2017 A. Green, *The Crisis for Young People*, DOI 10.1007/978-3-319-58547-5\_7 only 32,110 'affordable homes' were built in 20153 which was less than in any year since 1991. The White Paper proposals will not change this. In fact the measures proposed are derisory and much weaker even than what we had before. The requirement used to be that new developments had to include at least 20 percent of homes at affordable prices. The White Paper's provisions for 'Starter Homes' now includes just a 'policy *expectation* that housing sites deliver a minimum of ten percent affordable housing.' Unacknowledged in the White Paper is that the Government has recently diluted its defnition of 'affordable.' This now means at 80 percent of market value. With the average market price for a starter home in the UK now at around £211,000, an 'affordable' starter home costs 7.4 times the average earnings of 25–29 year olds, some three times the ratio that applied in the 1970s and 80s.4

The only way Britain is going to build enough affordable homes to rent or buy is to increase the supply of social housing through empowering housing associations and local authorities to build more. We know this can be done through a mixture of private development and state-led building initiatives. In the 1960s, between 300,000 and 400,000 new homes were built each year, almost half of these by local councils. It was only after the introduction of Right to Buy policies in the 1980s, and the limits then placed on councils replacing the homes they sold, that councils have built fewer and fewer homes. They are still not allowed to use all the receipts from the high quality homes they are obliged to sell for building new homes, and they are subject to an overall cap on borrowing for home building. It is not therefore surprising that they built only 2080 homes in the 12 months to June 2016.

Yet it is the local authorities which are best placed to build affordable homes where they are needed. They often have better access to land, particularly that held in the public sector, than private developers; they could be given powers of compulsory purchase where developers fail to build on land with planning permission; and they know what local communities need. Furthermore, they have access to cheaper borrowing than private developers and they don't have to price in the 25 percent proft margins that most large developers expect. They can therefore price homes for rent or sale more reasonably. Some councils, like in Birmingham and Hackney, have already started ambitious new development programmes, often mixing affordable homes to buy and rent on the same sites. More than a third of UK local authorities are now setting up their own housebuilding companies.5 They are only being held back by the fxation of governments on market solutions to the housing problem.

A mixed private and public sector response to Britain's housing crisis is the only one which is going to work. So it is necessary to invest substantial public funds in the process. Governments will have to lift the borrowing caps on local authorities even if this adds to the overall fgure for public debt. And they will have to subsidise local authority building programmes if we are to alleviate our chronic housing crisis. To those who say public funding of house building on this scale is not affordable, there is a simple answer. It is a much better use of tax payers' money than the current alternative. This involves public spending of over £27 billion per annum on housing benefts to help low-income tenants pay their rents—money which often ends up in the pockets of private landlords, many of whom provide a very poor service.

### Capital Gains Tax on Sales of First Homes

However, increasing the supply of homes will never in itself solve the problems in housing. Too many of the new homes will start—or end up—commanding high prices in the private sector, and too many of them will be bought by buy-to-let landlords and foreign investors rather than would-be home owners. We already have more rooms per person than ever, a surplus of homes to households, and an estimated 600,000 homes left vacant across the country. The problem is that too many of our homes are in the wrong places, at the wrong prices, and they are being bought by the wrong people. Reducing the current gross inequities, generational and otherwise, in home ownership and housing tenures generally requires a more radical approach which reduces incentives for speculation in property and restores the notion that homes exist to meet people's rights for safe and secure places to live. This means going back to basic economic incentives.

House prices have risen so high in many areas of England mainly because property is seen as an exceptionally lucrative investment. This is not a natural characteristic of housing—bricks and mortar don't have any magic property for yielding proft—and in many countries property is not regarded as a particularly good investment. That it has become so in Britain is largely because governments over many decades have systematically favoured property ownership, either because they wished to promote the benefts of a 'property-owning democracy' or, less admirably, because they just wished to keep the majoritarian property-owning electorate onside. The most fagrant case of this has been the tax privileges conferred on home owners and landlords. Historically these privileges included tax deductible mortgage interest for ordinary home owners. Until very recently, they still included special tax privileges for landlords who could set their mortgage interest, plus maintenance and insurance costs, against rental profts for tax purposes.

However, much the most egregious example of tax privilege for property ownership has been the exemption of so called 'frst homes' from the capital gains taxes which are paid on profts from the sale of most other assets worth more than £6000. If you invest in paintings or jewelry or other valuable assets you have to pay tax on the proft you make when you sell them. But not in the case of 'frst homes'. In the days when most home-buyers were seeking, frst and foremost, a place to live for their family, and when house values were not rising so fast, CTG exemption may have made some sense. However, few would claim today that asset maximisation was absent from their considerations when buying a house. Making a good investment is at the heart of people's decisions to buy homes to live in. It has to be—it is the biggest investment most people ever make. For small-time buy-to-let landlords it is the key to their exceptional profts, and they too beneft from CGT exemptions through the simple trick of re-designating supplementary homes as frst homes prior to sale.

Tax exemption on capital gains from housing transactions is both socially and fscally indefensible. It is socially indefensible because it represents the state providing economic favours to one section of the community (older home owners) at the expense of another (younger would-be home buyers). The latter, as a result of the tax incentives for property investment, have to pay higher prices to older vendors. It is fscally indefensible because it skews investment too much into one unproductive and already bloated sector, and away from other sectors which are more productive, like manufacturing. Rather few people invest in shares in public companies—despite all the hype about the share-owning society—but half the population invests most of their money in property.

No-one any longer seriously tries to defend tax privileges for property on the grounds of principles, either social or economic. The argument about home-owner democracy looks increasingly feeble when the phenomenon is literally disappearing before our eyes. The claim that state support for property ownership is necessary because it boosts the fnancial sectors on which national economic growth depends is dubious at best, the more so now since it was housing fnance which detonated the global fnancial crash in 2007/2008. Indeed the only remaining justifcation you hear for tax privileges for property ownership are ones of political expediency and misplaced short-term economic pragmatism. Governments will not consider reforming fscal policy on property because they think it will be unpopular with older home-owners. They fear any interventions which bring down property prices will tank the economy. Both arguments are short-term in the extreme.

Soaring property prices and associated levels of mortgage debt have already crashed the economy once and will no doubt do so again if things are left to go on as they are. Raising any taxes is certainly unpopular and introducing a new tax (CTG on frst homes) would initially be unpopular with a lot of people, it is true. But with the ever rising public debt some increases in taxation are now seen are as inevitable by many economists. The question will be which kinds of tax increases will be most effcient economically and will best meet the social objectives to which people most aspire. With increasing concerns about intergenerational inequity and about the adverse social consequences of rising inequalities in incomes and wealth, it is not impossible to conceive of winning electoral majorities in favour of raising revenues through higher taxation of property assets in exchange for smaller increases in income or other taxes. It should at least be debated.