General Election: Intergenerational inequality is the elephant in the room, not debates about tax

IF supporter, Daniel Harrison, asks why politicians are deliberately avoiding the really big issue facing our country?

General election tax promises

Observing political parties squabble about the precise level of taxation needed in the run up to the General Election,  one would think that taxation is either the problem or the panacea that will solve all of the country’s ills.

Both main parties try to portray an utterly different world view on tax where the Conservative’s ideologically driven ‘low tax’ Britain (despite record levels of taxation) is presented as diametrically opposed to Labour’s alternative sunlit uplands of a quasi-socialist utopia.

On the one hand, an analysis by The Telegraph supports the Conservative’s (widely disputed) claim that Labour will increase tax by £2,000 per household (£500 per year). On the other hand, the (notably right-leaning) Spectator magazine, using the same methodology, found that the Conservatives would also increase tax by £3,000 per household (£750 per year).

Fundamentally, both political partes need to level with the electorate about taxes and the independent research organisations agree. The grim reality of the public finances is that whoever wins the general election will have to raise taxes: The Resolution Foundation has calculated that it will equate to £800 per household per year; and the Institute for Fiscal Studies also confirmed that Further tax rises and further cuts for most public services are built into current plans. But on official forecasts, this is only just enough to stabilise government debt as a fraction of national income.”  

Primarily these inevitable increases in the tax burden are due to the freezing income tax and National Insurance contributions’ (NICs) thresholds until 2028/9 even though the NICs threshold has been aligned with income tax and NICs’ rates cut. Furthermore, a great deal of government spending is protected or ‘ringfenced on, for example, the NHS, the ‘triple lock’ on pensions, schools, foreign aid, and defence. Add to that the cost of caring for an ageing population, combined with anaemic growth and the next government is committed to an increase in the overall tax burden one way of another – even if both parties stick to their simplistic pledges to ‘not increase income tax, NI or VAT’.

Distraction techniques are the name of the game

But arguing whether the overall tax burden is around 36% or 37% of GDP completely misses the point as tinkering around the edges will not make any material difference to most working people.

So why do politician’s (and the mainstream media) obsess about relatively trivial changes in tax?

The answer is because it’s much easier to distract the electorate with a superficial debate about income tax than to address the real elephant in the room: intergenerational inequality and the deeply profound impact that is having upon living standards for young working-age people.

 The elephant in the room: intergenerational inequality

Over the past 45 years, all governments have pandered to the large baby boomer cohort in virtually all areas of public policy. These policy choices have resulted in spectacular falls in living standards for young working-age people. For example:

  • The unprecedented housing crisis which results in lifetime housing costs being three times as much as they were for the baby boomer generation.
  • The average graduate student debt is currently £45,600.
  • Young working-age people are simultaneously being forced to pay the debts of the older generation though higher taxes. At least £241 billion (around 20%) of current government spending is paying for the £6.4 trillionof largely “unfunded” pensions and £2.6 trillion of public debt interest. See Table 1.

Table 1 UK Government spending – 2024/25

Pensioner spending* £152 billion
Public debt interest £89 billion
Total Government spending £1189 billion

Source: Office of Budget Responsibility (OBR) *Pensioner spending includes state pension, pensioner housing benefit, pension credit, winter fuel payment expenditure.

And this analysis is supported by the 2015 UK Parliament Select Committee on Work and Pensions report “The Intergenerational Contract Under Strain” which concluded that “People currently aged 65–69 would on average have a net withdrawal of more than £220,000 over the remainder of their lifetimes. In order to achieve fiscal balance by the end of today’s infants’ lifetimes, as yet unborn people would need to contribute an average of £160,000 in net terms.”

Therefore, due to decades of overspending on and under-taxation of the baby boomer generation, the young working-age population will have to make up for this shortfall, equating to around £3,000 in extra tax per person per year over their working lifetime.

For a dual-income couple, it equates to £6,000 of extra tax per household, per year.

That figure of £6,000 of extra tax per household is around 10 times the £500–£800 per year per household in tax increases currently being discussed by political parties and research institutions.

Unsurprisingly, politicians would rather talk about the relatively narrow issue of income tax rather than address the fact that a demographic anomaly of three million extra baby boomers has distorted our democracy for the past 80 years, or admit the findings of the Select Committee that The economy has become skewed in favour of baby boomers and against millennials.“

Intergenerational inequality

The Intergenerational inequality we see today is the result of successive governments – both let- and right-leaning – using the taxes of working-age people to buy the votes and loyalty of older people. It has resulted in a massive wealth transfer from young to old. Our tax system effectively redirects around one billion pounds each working day from working-age people to subsidise the debts and liabilities of the old.

As highly esteemed economist Joseph Stiglitz has commented “we won’t be able to fix the problem if we don’t recognise it. Our young do. They perceive the absence of intergenerational justice, and they are right to be angry.”

It is much easier to gaslight the electorate with facile arguments about 36% tax vs 37% tax. That is how narrow the acceptable parameters of debate have become. And to illustrate the point, we have recently seen a four percent cut in National Insurance and it has not fundamentally changed people’s lives – demonstrating that it’s a non-argument.

For a young person facing an unprecedented generational cost-of-living crisis where housing is three times as expensive, a one percent change in the level of overall taxation is, to quote the late, great comedy genius Robin Willams, “about effective as a flea fart in a hurricane”.

What we need

What we urgently need in the UK is a range of progressive policies to gradually reduce intergenerational inequality, to allow young people to prosper and flourish and reach life’s natural milestones: to be able to afford to move out; to afford their own place to live; and to be able to have children. All of those milestones are increasingly being delayed, deferred, or denied by intergenerational inequality.

Manifesto pledges?

So what are we likely to see in this week’s upcoming manifesto launches? Don’t hold your breadth as there is likely to be a crisis of imagination and no real optimism or bold vision. Tinkering is easier than real change. Whilst a few of the changes that the Intergenerational Foundation have called for are likely to be implemented by an incoming Labour government, these are quite limited measures:

  • Lowering the voting age to 16
  • Rumours of equalising CGT to income taxes
  • Limited ‘wealth’ taxes – e.g. non-doms, private schools, oil & gas windfall taxes

And whilst there is likely to be some very limited tinkering of the housing market with a continuation of the mortgage guarantee scheme as well as pledges to remove stamp duty for first time buyers (FTB), there will be nothing to fundamentally bring rents or house prices down – as that is considered heresy.

But where in the manifestos will there be anything substantive to address the following major issues facing young people?

  • Intergenerational inequality
  • Wealth inequality
  • Health inequality
  • Educational inequality
  • Personal debt
  • Housing
  • Homelessness
  • Poverty

These are all intertwined issues that urgently need addressing in our increasingly polarised and atomised society. 

By all predications, Labour are likely to achieve a stomping majority and possibly two election terms and yet they too seem not to have any grand vision. If they have such a mandate, why aren’t they more bold on behalf of the young?

Britain is crying out for a much bolder vision of what the country could be. On the rare occasion when politicians are challenged about intergenerational inequality, they often claim that ‘it’s not a vote winner’, as young people ‘do not vote’ (rather proving the demographic bias in our democracy). What the politicians forget is that the baby boomer generation will soon pass on and the growing cohort of younger working age people who are not on the housing ladder, who do not have children, or a secure job, or a pension, will be soon the majority and they will remember the political betrayal and will demand radical political change.

Daniel Harrison is an economist, analyst, and author of ‘Intergenerational Theft

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