A lifetime gift tax could be the solution to increasing homeownership inequality

In the 1960s the sociologist Robert Merton identified something he described as the “Matthew effect”.

Merton was drawing on the observation by Jesus in the Gospel of Matthew that, “for whosoever hath, to him shall be given, and he shall have more abundance”. In other words, there’s a natural tendency for the rich to get richer.

Anyone looking for evidence of this Matthew effect in our own economy will find it in residential property ownership.

The Resolution Foundation think tank has produced new research showing that those whose parents are homeowners are considerably more likely by the age of 30 to be homeowners themselves.

That’s probably not surprising to many readers. The existence of the “Bank of Mum and Dad”, where wealthier parents give their children money to enable them to get on the housing ladder, is no secret, and we’ve had estimates from financial firms about just how big these annual financial transfers are.

But the Resolution Foundation’s latest work, nonetheless, adds value because it has managed to quantify, through a smart use of longitudinal survey evidence, just how closely an individual’s chances of owning by the end of their third decade is associated with his or her parents’ homeownership status.

Homeownership rates for those with parental property wealth are 25 per cent – almost three times the rate of those without parental property wealth.

And the link seems to have become more pronounced over the past two decades. In the mid-1990s and early 2000s the homeownership rate of those with property-owning parents was only twice as high as that of others.

The Resolution Foundation work also suggests that as a predictor of homeownership rates by age 30, parental homeownership is more important than education, region of residence, whether someone is in a couple, and is now even catching up with young people’s salaries.

“If current trends continue, it is likely that whether or not someone is able to own their own home will be increasingly decided by who their parents are,” the think tank says.

Another fact that the report brings out is that the property-ownership advantage often comes well before formal inheritance, or when the older homeowners may leave their own property assets to their children in their will. Parents’ property wealth, their illiquid assets, seems to get monetised for gifts or soft loans to children so they can accumulate bricks and mortar assets of their own.

This has policy implications for those who want to slow down the Matthew effect in our economy, for those politicians who think that intergenerational cascades of wealth and economic advantage are socially toxic.

The Resolution study makes it clear that the current inheritance tax system (even if the threshold were lowered to a sensible level and all the many loopholes were ended) would be inadequate for tackling the core kind of intergenerational asset transfers we’re increasingly seeing.

The Institute for Fiscal Studies has long championed the replacement of the inheritance tax with a “lifetime gifts tax”. The Resolution Foundation itself, more recently, has backed such a reform.

The advantage of such a levy is that, unlike the current inheritance tax, it would capture the financial helping hand given to children to buy homes.

But how would a gift tax work? Would every £ 10 gift voucher from grandma be taxable? How would loans be treated? Carl Emmerson of the IFS points out that there is nothing insurmountable about the challenge of designing a new system. Recipients would inform HMRC of gifts received from a single donor above a certain value each year.

Emmerson suggests a minimum lifetime allowance for each individual, and anything gifted to them above that threshold becomes taxable at a progressive rate. The terms of soft loans could be compared to commercial lending rates and the tax levied on the difference (with the full tax being payable if the loan is written off).

It would be up to the government to decide the allowances and rates, something that they would hopefully do guided by expert advice.

But the principle is sound. And we can also be reasonably confident about its overall impact: it would throw sand in the gears of one of the biggest motors of intergenerational wealth inequality.

It would help keep Matthew shackled.

#inheritancetax #lifetimegifttax

The Tories have underfunded mental health services while boasting of their generosity

The overall economic and social costs to our society of poor mental health are estimated to be more than £100bn a year.

In that context, a bill of £70,000 is, of course, a drop in the ocean. That was the cost to the Metropolitan police for dealing with almost 9,000 emergency calls from sufferers in 2017.

But the fact that all those calls came from just five people helps to force home a broader truth: when mental health services are underfunded by the government, the cost invariably shows up elsewhere. It manifests in increased demands on the police, the courts, prisons and the regular health service. It also shows up in rough sleeping.

And then there are the intangible costs. Things like disrupted education, family breakups, lost jobs, derailed careers, and of course the personal anguish for suffers and those close to them.

That's how you get to £100bn, or around 5 per cent of UK GDP.

The government spent around £12bn on mental health services in England in 2017-18, around a tenth of the total health budget. Perhaps that sounds a lot. But the reality is the ministers have indeed underfunded mental health services, along with most other public services, in the age of austerity.

In 2012 ministers made a commitment to "parity of esteem" between physical and mental health, essentially a promise that people with mental health problems would get the same access to care and treatment as those with physical ailments. Yet research by the King's Fund think tank has shown that in the following three years almost half of the 60 NHS mental health trusts saw their cash budgets fall, while most regular acute trusts saw an increase.

There was an improvement for most mental health trusts in 2016-17, but evidence suggests that their level of funding in real terms remains below the level seen before 2012. And demands on the service have grown over that period as the population has increased.

Data on total mental health spending over time is unreliable for various technical reasons, but it's likely that, per person, and adjusting for inflation, funding will have gone down under the Conservatives and the coalition. The government's own independent Mental Health Taskforce in 2016 complained about "chronic underinvestment in mental healthcare across the NHS in recent years".

If you spend less on a service, or keep funding spending below demand, the quality and availability of the service will suffer. Moreover, if that service is the treatment of people with mental health problems, there will likely be spill-over social harms. The economy will prove a false one. Ministers seem to have been in denial about this simple fact.

On World Mental Health Day in 2017 the former health secretary Jeremy Hunt boasted to MPs that there are "30,000 more professionals working in mental health than when my government came into office".

It soon emerged that the reality was an increase of around 700 and Hunt had to correct the official parliamentary record. Moreover, this small increase was driven by an expansion of psychotherapists. The number of mental health nurses is 5,000 lower.

There are some 215,000 specialist mental health posts in England and around 20,000 of them are currently filled by temporary agency staff. A survey of mental health staff last year indicated shortages of personnel and a rise of violent incidents. And a recent report by the Care Quality Commission regulator this year showed many young people are finding it particularly difficult to access treatment.

Have ministers finally got the message that the system is failing? Philip Hammond announced in the budget earlier this month that funding would grow as a share of total NHS spending over the next five years and that a "mental health crisis service" would be established.

Yet clinicians and commissioners have called for any extra funding to be ring-fenced, indicating concerns that any extra money risks being syphoned off to meet other health spending demands and that "parity of esteem" remains more of a slogan than a reality.

Given the shameful recent history of mental health treatment - the underfunding, the broken promises, the political denial - who can blame them?

#Jeremy-Hunt, #mental-health, #NHS

Interview: Adair Turner

Adair Turner is being provocative again.

Almost a decade ago now he scandalised bankers and traders (although not the general public) when he declared the work of financiers to be“socially useless”.

A few years ago he made himself almost equally unpopular in central banking circles by suggesting they should consider monetising debt to rebalance their economies.

And now Baron Turner of Ecchinswell’s latest thesis is that politicians, everyone from the Chancellor Philip Hammond down, are talking rubbish about productivity.

“Although what every politician always agrees is that the crucial thing we need to do is speed up the rate of productivity growth – every politician’s wrong!” the silver-haired 63-year old declaims in an interview with The Independent.

Turner, whose technocratic career has taken him from the CBI, to the Climate Change Commission, to a major government review of pensions, to the chair of the Financial Services Authority, is now chair of George Soros’ Institute of New Economic Thinking. And the economic thinking he’s doing is certainly “new”. Downright heretical, many would say.

So what’s led him to this radical conclusion that we should stop obsessing about productivity growth? The answer is twofold.

First, he suspects automation is happening quicker than is being picked up by our official GDP statistics. Second, he thinks lots of the new service jobs being created as the mechanisable parts of the economy become more efficient are inherently “zero sum”, meaning they are competing for the distribution of wealth rather than its creation.

He gives an example of street sweepers and lawyers: “If we manage to create a totally effective automated street sweeping machine nobody would have a job as a street sweeper….But if we apply IT to the limit to law, there’ll still be lawyers. It’s just that each of these two highly paid lawyers will now have software that review not simply many cases, but every single case that there’s ever been”.

“What do lawyers do? They fight against each other. If you make lawyer A and lawyer B both much more skilled than they were before you can’t say there’ll be a better product, there’ll just be a more intense fight.”

He thinks that focusing on productivity growth in this context will not help to deliver a higher quality of living for most people. Indeed, he fears it could actually end up harming living standards, citing the example of those who provide social care for the frail elderly.

“What do we do with those jobs at the moment? We reduce their status and their cost. We put them up for competitive bidding. And we bid down the price. And then we do these gig economy games where people being paid to do social care of the elderly aren’t even employed for movement between client one and client two; we say you’re only working when you’re at the client. Then we tailorise their life. We say ‘you’ve got 14 minutes to clean someone’s bottom’…”

The solution, Turner says, banging the desk of his Mayfair office where we are meeting for emphasis, is simply to stop focusing on the bottom line.

“We’ve just got to pay more for social care – we’ve just got to make something which is valued. We’ve got to pay higher taxes to afford it. They’re never going to be high-paid jobs, but we should not be using the techniques of the market to skinny them down.”

He concedes the macroeconomics of his argument, laid out in an extensive lecture in the US earlier this year,is unproven. There are certainly many theoretical and empirical challenges that could be mounted. He also accepts that his thesis that we should focus more on distributing the GDP pie than growing the (measured size of it) will not be easily swallowed by the policymaking classes.

“Ten years ago I said precisely the opposite,” he smiles. “That’s undoubtedly [not] what I would have said when I was director of the CBI. I’m still cautious about leaping to that. But sometimes a useful role in public debate is to throw something deliberately provocative into the pond!”

Turner advises a start-up online bank – OakNorth – which he says has influenced his views on the rapid underlying speed of job-shedding automation.

As chair of a group called Energy Transitions Commission (ETC) group, made up of public and private sector experts and executives, he’s also advising governments in China and India on decarbonisation.

Despite Donald Trump’s withdrawal of the US from the Paris Accords, Turner insists he’s relatively hopefully about the prospects of cracking the problem of a rapidly overheating planet.

“We’re optimistic that there are bits of Indian policy that are heading in the right direction. I’m optimistic that China gets it, that they are determined eventually to bring down their emissions, that they’ll develop renewables on a massive scale, that they’ll electrify their bus fleets etc,” he says.

“The thing that frustrates me about climate change is that we could get to 2060 and we could have a pretty close to zero carbon economy. Run the numbers and it’s completely doable by technologies that we know how to do. It is soluble if we just get on with it.”

But what’s lacking from Turner’s employment portfolio is a major, high-profile, public sector job in the UK. Jeremy Corbyn’s Labour seems an obvious fit. They could use someone with Turner’s economic and establishment credentials.

And it turns out there has been some contact. On 19 May (the same day as the Harry and Meghan Markle’s wedding) Turner was to be found addressing Labour’s macroeconomic conference.

But could he work with a party who many in the business world regard as unreconstructed Marxists, a bigger threat to the economy even than Brexit?

“The answer is I’d have to spend a bit more time,” he says, judiciously. “There are some things about some of the people around them of which I am suspicious. There seem to be some people around then who genuinely do believe that Venezuela is a well-run country. You cannot believe that and be sensible. Venezuela is a disaster and it has been destroyed by a left-wing Marxist government that had oodles of oil revenues. You’ve got to say the way that the world is.”

But he’s certainly not shutting the door.

“There are things that make me wary of that tradition on the left which can see no problems with left-wing governments. On the other hand, there are other aspects of what they are saying that do not seem all that extreme or worrying.”

The supreme British establishment technocrat taking a job with a radical left Labour team? That could be a Turner provocation to put all his others in the shade.

#Adair-Turner, #climate-change, #Labour-Party, #productivity