As the Labour government’s first budget approaches, Daniel Harrison, IF supporter, economist, and author of Intergenerational Theft questions how the Government will address the burning issues blighting the prospects of young people

It is understandable why the new government is keen to focus on its mantra of growth, growth, growth. It’s fundamentally because it avoids the issue of redistribution or wealth taxes and sidesteps making much more politically difficult choices between substantially raising taxes and/or making savage public spending cuts. But how does this relate to intergenerational unfairness? Let’s quickly recap.
Intergenerational unfairness
There is overwhelming evidence that UK government policies and our economy are extremely intergenerationally unfair. Here are just the prime examples. The most recent government analysis in 2015 by the UK Parliament Select Committee on Work and Pensions called “The Intergenerational Contract Under Strain” admitted:
“There is abundant evidence to suggest that today’s young workers are enduring a lower standard of living than today’s pensioners did when they were the same age”. The reported calculates that “the intergenerational budget imbalance to be £7.6 trillion in aggregate terms. Future generations will, in effect, inherit net liabilities of just over five times annual GDP.“
The report succinctly concluded that:
“The economy has become skewed in favour of baby boomers and against millennials.“ and calculated 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.”
ONS official data reveals the £6.4 trillion of largely “unfunded” state pension and public sector pension liabilities that future generations will be forced to pay through higher taxes.
The housing crisis is the “everything crisis” and results in lifetime housing costs for young people being three times higher than for baby boomers. ‘Generation Rent’ epitomises this injustice as James Sefton, Professor of Economics at Imperial College, London , has stated:
“As the young’s main resource is their current and future labour income, whereas the old have a significant share of the wealth invested in real estate, implicit in this price appreciation is a large intergenerational transfer from young to old.”
Due to decades of overspending and undertaxation of the older generation, national debt is now 100% of GDP at £2.7 trillion with annual debt interest as high as £112 billion. And former Prime Minister Rishi Sunak stated,
“Just borrowing more money and stacking up bills for future generations to pay is not just economically irresponsible, it is immoral.”
Average graduate student debt is currently £45,600 often burdening graduates with a debt that grows faster than they can pay it off.
Environmental debt. Writer & environmentalist, George Monbiot, has stated that:
“The young people taking to the streets for the climate strike are right: their future is being stolen. The economy is an environmental pyramid scheme; dumping liabilities on the young and the unborn. Its current growth depends on intergenerational theft.”
Intergenerational unfairness, wealth inequality, and low growth
Fundamentally, these are all symptoms in a distorted democracy of a government pandering to older voters by simultaneously promising them low taxes, but high public spending. However, the government has only achieved this by passing on those inevitable debts to future generations.
Figure 1: How intergenerational unfairness, wealth inequality, and low growth, interrelate
Wealth inequality
For people on normal incomes, wealth inequality largely manifests itself in the form of property and pensions. And therefore, wealth inequality closely aligns with intergenerational inequality, because assets such as housing and pensions accumulate over a person’s lifetime. Furthermore, an ageing population, combined with an unusually large baby boomer cohort, plus record levels of home ownership among that post-war cohort, means that wealth is increasingly tied up in property among the older generation. And for this large baby boomer cohort, they exert disproportionate political power and actively want their assets to increase in value, which government panders to, by restricting housebuilding, and other policies which push up house prices even further. For example, ‘Quantitative Easing (QE)’ was deployed since the financial crash of 2008 ostensibly to prop up the economy – but it also had another intention.
George Osborne, Former Chancellor of the Exchequer has admitted that:
“[QE’s] purpose is that people who already have something like a house or a pension or some shares will see the value of those things go up,” he said. “That’s what the policy is designed to do and it feels unfair because the people who don’t have those things aren’t getting the benefits of the policy.”
And that deliberate policy has clearly widened the gap between young and old and exacerbated intergenerational unfairness.
However, for the super-wealthy, and by that I mean people with over £10 million in assets, this group has never done so well. Despite the post-war period from 1945-1990 seeing a steady reduction (from a very high level) of wealth inequality, this has now been put into reverse and wealth inequality has been steadily increasing since 1990. Furthermore, wealth inequality dramatically widened during the Covid-19 pandemic with the richest 10% of the population reportedly gaining an extra £50,000 each, and the number of billionaires increasing by 20%.
However, very wealthy people tend not to spend all their money. Instead they invest it in assets which further inflates those asset prices. You can see this evidenced in the way that nationally 35% of property is now purchased by cash buyers, and an astonishing 70% in prime central London.
As the super-rich became richer, this explains why during the pandemic, despite all the economic turmoil and higher interest rates, property prices actually increased. It follows that young people are not so much competing with each other for housing than increasingly competing against cash-rich ultra wealthy people. That is one of many reasons that house price multiples have decoupled from ordinary salaries.
Low economic growth
However, this growing concentration of property wealth in the old and super-rich creates a secondary problem. If that wealth is not being productively invested in a business, or being spent, then the overall economy stagnates.
Former self-named No.1 Citibank trader, turned inequality activist, Gary Stevenson campaigns entirely upon this point, that growing wealth inequality will lead to a disaster in our economy and collapse in living standards for ordinary people. Unless something is done, the wealthy will essentially ‘eat the poor’, with the middle class simply ‘hollowed out.’
I am reminded of the game of Monopoly™, whereby the rich and old are increasingly hoarding properties, and accumulating cash by demanding extortionate rent from tenants. But the young cannot: pass ‘Go’, move out of the family home, afford to buy a home or have children. All of the natural life stages that previous generations took for granted are having to be put on hold. Most young people are being locked out of the game of life.
Effectively our modern economy is increasingly being run like a Ponzi scheme, where early investors (the old) extract more than they put in, but those that join the scheme later (the young), have to put in more than they take out to keep propping up the straining Ponzi scheme from collapsing. See The Intergenerational Contract Under Strain
Furthermore, in the context of crippling rents and high house prices, student loan repayments, record levels of taxation, plus childcare costs – all a direct consequence of intergenerational unfairness – young people are enormously economically strained and do not have much disposal income to spend to drive economic consumption.
So the rich are not spending much of their money, and young people have little or no discretionary income to spend – and the result? The economic model based upon consumer capitalism stagnates. Therefore intergenerational unfairness, primarily caused by the housing crisis, ultimately stifles the economy. So the belief that rising house prices are a good barometer of the health of the economy and something to be celebrated is fundamentally wrong.
Neoliberal free-market policies
The transition from the ‘post-war consensus’ or ‘embedded liberalism’ from 1945–1979 of Keynesian state-led economic policies, to the more Neoliberal, and ‘free-market consensus’ from around 1980 onwards has, unsurprisingly, resulted in widening wealth inequality, and relatively low economic growth.
And that is fundamentally because our Neoliberal economic model has increasingly become not about wealth creation, but wealth extraction, i.e. the wealth transfer from poor to rich, from young to old – with very little true wealth being created. But why? because the deregulated free-market economics that it advocates encourages capital to be diverted towards short-term profiteering in non-productive ways via e.g. share trading, F-X trading, housing speculation etc. that are good for individuals, but bad for the overall economy.
Yes to Capital Gains Tax
In that context, it cannot be right that it is possible to earn more of an income and pay a lower rate of capital gains tax via property speculation than earning a genuine income on PAYE. Accumulating wealth in this way from ‘passive income’ is the enemy and the opposite of economic growth and genuine wealth creation. That is why we must have an alignment of Capital Gains Tax (CGT) and PAYE income tax.
Genuine economic growth takes years. And within a low growth economy, it’s nigh impossible to raise the living standards of everyone. Thus successive governments have masked that poor economic performance with short-termist policies to make their core voter base ‘feel’ wealthier: privatisations i.e. selling off the family silver; accumulating national debt; and manipulating housing market growth. The problem is that this zero-sum game merely makes one generation asset rich by making the next generation poorer.
Retirement costs
Another reason for the UK’s slowing economic growth is the gradual exit of the baby boomers from the workforce over the 2020s, and the decreasing ‘dependency ratio’ of working-age people supporting a growing cohort of retired people and government day-to-day spending on pensions, social care and the NHS. And this clearly limits funds available for public sector investment.
And what about human productivity in relation to intergenerational equality? Could it be that young people are simply exasperated, demotivated, and disillusioned by their prospects, with many unable to afford housing, or progress through life’s normal milestones? It is therefore unsurprising that young people are reporting record levels of mental ill-health, ‘quiet-quitting’ or even exiting the workforce entirely and moving onto benefits. Currently, a record 22% of the UK’s workforce are not economically active.
There is hope for younger generations
We must keep campaigning for intergenerational fairness and support younger generations in calling for a fairer deal from the new government. Only then, can we exert the immense pressure needed on government to act decisively to improve intergenerational fairness. As the recent winter fuel payment means-testing has shown, older wealthier cohorts will not give up their expectations of entitlement easily.
A 10-point policy plan:
- Implement a large housebuilding programme to increase supply and reduce house prices/rents
- Launch a thorough review of the current state pension system
- Align income tax on earned income with capital gains tax on unearned income.
- Review student fees and maintenance loans
- Introduce a modest wealth tax only on the very wealthiest 1% of individuals
- Introduce a consumption tax e.g. airline carbon tax which hits the wealthiest the most, and mitigates climate change.
- Lower the voting age to 16 alongside Scotland’s implementation in 2016
- Support the Wellbeing of Future Generations Act in England and follow Scotland’s and Wales’ example
- Measure the journey towards long-term thinking and investment with intergenerational impact assessments
- And let’s have a cabinet minister for intergenerational fairness
Profoundly, the intentional government biases that have made the old better-off and the young poorer need to be reversed and that will inevitably create howls of protest from the old.
Will the Labour government step up?
Fairness may seem to some like a quaint, old fashioned concept.
But intergenerational unfairness is the elephant in the room.
So instead of this vicious cycle of intergenerational unfairness, wealth inequality, and low growth, and if the new government is serious about economic growth, it needs to understand the interplay of these three factors and instead create a virtuous circle improving the prospects for younger people.
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Picture by Kirsty O’Connor, Wikimedia Commons