Sunak Urged to Use Tax Policy to Combat U.K. Generational Divide

(Bloomberg) -- Chancellor Rishi Sunak should use tax and spending policies to address a widening economic gap between old and young in the U.K., according to a review being led by Nobel Laureate Angus Deaton.

The generational divide that opened up after the financial crisis has been made worse by the pandemic and will be exacerbated if the Bank of England loosens monetary policy again as expected, according to the study published by the Institute for Fiscal Studies.

The assessment published Tuesday lays bare the challenge facing Sunak as he considers how to help those hit hardest while tackling the biggest budget deficit in British peacetime. It warned the young are more likely to work in virus-sectors such as hospitality. Older people have benefited from rising asset prices as investors bet on ultra-loose monetary policy staying in place.

“The program of quantitative easing and low interest rates in the aftermath of the financial crisis resulted, perhaps inadvertently, in a redistribution of wealth toward the older and wealthier and away from the younger and poorer; the same may happen again,” the report said. “It is important that fiscal policy recognizes these distributional effects and leans against them, rather than doubling down on them as has happened over the past decade.”

The analysis, part of the IFS Deaton Review of Inequalities launched in 2019, found widening inequality on display across society and called on the government to deliver targeted support. It said:

• Mortality rates from Covid-19 were almost twice as high in the most deprived areas as the least deprived in the early months of the pandemic
• Virus deaths among some Black groups are almost twice those among White British
• Pupils at privately funded schools are twice as likely as state-school pupils to get online lessons during lockdown
• Non-graduates are more likely than graduates to work in a locked-down sector, with less scope to work from home, and self-employment jobs have fallen almost 10%

“As the vaccines should, at some point this year, take us into a world largely free of the pandemic, it is imperative to think about policies that will be needed to repair the damage and that focus on those who have suffered the most,” said Deaton, who is chairing the review. “We need to build a country in which everyone feels that they belong.”

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