The Coronavirus crisis calls for some radical rethinking all round – but the young are especially exposed. Angus Hanton, Co-Founder of IF, proposes two solutions that would make a big difference to intergenerational justice: scrap student debt and slash income tax for the young
Covid-19, or C-19, is a pandemic which is directly affecting all nations and all generations. Vast resources in the UK are rightly focused on saving those who turn out to be most vulnerable – the over 70s – and most of us are willing to spend time and money, and we will also risk our health, to protect older people. However, the financial burden of this crisis is already falling brutally and unfairly on younger people.
The way our economy is managed means it is the interests of the young that are being sacrificed: young people rely on earned income for survival, whereas older people rely on their pensions, rents and investment income which they receive regardless of a health pandemic.
Future generations will pay the price
But it’s worse than that because the emergency measures just announced will mean a huge build-up of national debt. This falls disproportionately on younger and future people: the national debt will balloon as a result of the measures being taken against Covid-19 and the consequent interest costs and repayment burden will fall on future taxpayers, mainly today’s young people.
In recent years young people’s wages have been stagnant and employment has become more precarious, so the economic shock of Covid-19 will hit the young much harder than older generations.
Housing costs are similarly skewed against the young: older generations are likely to own their homes outright with over 70% of them being owner-occupiers and most over-60s are mortgage-free. Younger people are more likely to be tenants and less likely to have concessionary rents.
So the result of Covid-19 is that housing costs will burden young people far more heavily than the older generation. Talk that “we are all in this together” is as widespread as it was after the 2009 financial crash – yet we know that wasn’t true in 2009 and the following 10 years were uniquely hard on younger people.
It may well be that in terms of health we are indeed “all in this together” against Covid-19 but in financial terms the young are on their own.
The dice are already loaded
Apart from a loss of income and overwhelming housing costs, young people are suffering more than older generations in other ways:
- Younger workers are more likely to have pensions which are simply savings schemes (obscurely referred to as “defined contribution”), while older workers are much more likely to have schemes that pay out generously regardless of any underlying investment performance. This means that as a result of Covid-19 young people have now lost a third of their pension savings which were already far less generous than those of older people. But it’s much worse than that: because companies must pay for these fixed pension promises for older people, those companies will not have enough money to raise wages and investment.
- The ongoing economic downturn will heavily impact younger people who face higher unemployment and have much smaller financial cushions against hard times.
- Many Millennials in their 30s, who have already suffered the post-2009 trauma of 10 years of austerity and the scarring effects of a poor job market, will now find their precarious finances rocked by unemployment and uncertainty.
- Those Millennials who have been lured by low interest rates into buying expensive housing may well find their investment is now washed away by falling house values and the damage done by Covid-19.
So what can the government do?
Rather than introducing a series of well-intentioned sticking plasters, it needs to recognise that intergenerational fairness belongs explicitly at the heart of all government thinking and it should restructure the tax system to reflect that.
A good start would be to forgive all student debt, a small cost in relation to what is now proposed for Covid-19 – about a third: £120bn of student debt as against £350 billion of Covid-19 spending.
Then they should reduce income taxes, which are mainly borne by the young, and replace that lost income with wealth taxes which would be mainly paid for by older generations.
Government is right to do everything it can to protect older people from Covid-19 but surely not to protect their wealth from the costs of combating the disease.
Photo by Alex Motoc on Unsplash: https://unsplash.com/@alexmotoc
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