In this contribution to IF’s Worldwide Blog Week, Chris Wongsosaputro, Co-Chair of the Young Fabians Economy & Finance Network, calls on the government response to COVID-19 to focus on improving younger generations’ skill sets
Young people hit hardest
In economic terms, the COVID-19 pandemic has impacted young people more than other generations. Figures from the House of Commons Library shows the number of young people aged 16 – 24 in employment decreasing by 311,000 (8%) in the quarter February to April 2021 compared to the quarter January to March 2020.
This figure compares to the drop in employment by 207,000 for those aged 25 and above. Moreover, the youth unemployment rate has increased from 12.1% to 13.2% over the same period while 263,000 more young people have become economically inactive, equating to a 10% rise. The figures above exclude any potential increases due to the end of the Coronavirus Job Retention Scheme in end-September 2021, thereby highlighting the lack of job security for many young people.
Job security and continuous learning
The post-pandemic economic recovery should thus focus on improving job security for the younger generations. One key factor which will define the workplace of the future is the automation of work in many sectors.
A University of Oxford study listed the first sectors to be automated as transportation and logistics, office and administration and production labour, all of which employ many young people. Therefore, the Government needs to ensure that young people are fully equipped with skills to adapt to the threat of automation by including IT, programming and AI lessons as part of the school curriculum.
This will involve hiring teachers and trainers with the appropriate skillsets, and investing in the equipment to facilitate these lessons. Doing so will ensure that young people still in school adapt to the future of work from a young age.
Upskill the workforce
The same principle should also apply to those already in the workforce regardless of their age. As part of a public-private partnership, the Government should work in conjunction with the private sector to provide courses for those who are keen to upskill. The private sector should contribute to the funding of the teaching, equipment and sites under the scheme.
Upskilling sessions can be difficult to pull off without a specific time being set aside for the courses. Therefore, the Government can also contribute to paying a portion of the salary for the workers who are attending the courses alongside the private sector.
The proposed scheme starts off by the participants attending the course for a few months, followed by regular short update courses to keep themselves updated with the latest developments in their sector.
Ultimately, the scheme could also be one of the ways to resolve the UK productivity conundrum, whereby output per worker has stagnated since the Global Financial Crisis. The Government can recoup the spending on the courses via the higher tax income from a more productive workforce.
Housing
Another key issue for the young people is housing. Only 34% of people aged 16 to 34 owned their own homes in 2016, compared to 54% in 1996. Conversely, the percentage of homeowners among those aged 65 and over has risen from 63% to 77% over the same period.
Given the high proportion of young people renting, a short-term measure to improve the rental market would be to create a public database with ratings on the property from previous tenants. Having access to the database will provide tenants with the ability to make careful decisions before renting and select properties which best meet their needs.
Moreover, rental expenses can be expensive for young people, particularly in London. The average young person aged 22 to will spend 73% of their net monthly income for an average one-bed flat in Hackney and 70% in Lambeth. One way to make rent more affordable for young people is to create a separate tax band for rental income. Under the current arrangements, rental income is considered a part of the usual taxable income, which means much of the income falling under the 40% and 45% income tax buckets.
Rental income tax
The system therefore incentivises landlords to charge higher prices in order to recoup their expenses including tax, mortgage and utilities. Having a separate rental income tax band will allow more income to fall under a lower tax bucket and thus encourage landlords to charge cheaper rates.
The expectation is also for a higher compliance rate among landlords, thereby reducing the currently high levels of tax evasion on the part of some landlords, and increasing the tax takings for HMRC. This step will benefit not only renters in London but across the UK.
Another key issue to consider is the prospect of home ownership for young people, which has declined over the last 25 years. The Government has implemented mainly demand-side policies during the last decade with the example policies being the Help to Buy and Stamp Duty Land Tax holiday schemes. The Help to Buy scheme has artificially propped up house prices by around 4-5%, making homeownership more unaffordable for young people.
Supply-side housing policies
Therefore, we need a move towards supply-side policies, including building of more affordable and sustainable homes for young people. This is especially so as only 1,632 new council houses have been completed in London since 2018. The planned simplification of the planning reform outlined in the Queen’s Speech 2021 is a step in the right direction as land allocated for new houses, hospitals and schools will obtain automatic permission to be built as long as they meet clear design codes.
Moreover, there are also planned changes from the document-based planning system to a digital one to enhance residents’ participation in local developments. The changes here would increase the number of potential brownfield sites available for development of affordable, sustainable council housing.
The Government can also boost the housing supply for renting or purchases by converting empty high street premises into housing and also working with existing commercial tenants to provide more housing. For instance, the Government can work with companies such as John Lewis Partnership to provide more affordable housing rental homes, after the latter announced its intention to build 10,000 rental units over the next 10 years.
Last but not least, the Government can work with mortgage lenders to provide mortgages in housing units located in buildings above 6 storeys high. Based on conversations with mortgage brokers, I understand that mortgage lenders are reluctant to grant such mortgages due to cladding fears after the Grenfell Tower incident.
The reluctance here reduces the potential number of houses which young people can buy as they are restricted to cash buyers only. In order to mitigate the risk, the Government should expedite the re-cladding process and also provide the necessary guarantees over the safety of the buildings. Doing so will increase the availability of homes for young people and others.
Benefit the entire economy
The COVID-19 pandemic has impacted young people particularly hard, especially when it comes to employment. This builds on a longer trend of homeownership and other assets becoming increasingly out-of-reach for young people.
Therefore, the economic recovery should focus on addressing the issue of job security among young people and providing affordable and sustainable housing, both for rent and purchase. By doing so, the entire economy will benefit from a more productive workforce, while ensuring that young people have a brighter future to look forward to.
The Young Fabians doesn’t take organisational positions on policy issues. Chris’s views are therefore not the official position of the Young Fabians, but are presented as a contribution to the debates surrounding intergenerational fairness. If you’re under 31 and on the left, you can find out more about the Young Fabians here and join us here.
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