The 2025 Spending Review is an opportunity to provide feedback on government spending priorities, propose new policy ideas, and influence departmental budgets and resource allocation. In this article, IF researcher Conor Nakkan, outlines IF’s submission to the Review.
Background
In recent years, government spending decisions have disproportionately benefited older generations. IF’s research has illustrated that increases in government spending over the past two decades have been skewed towards older generations, while policy areas affecting young people have been relatively neglected.
At the same time, younger generations face mounting financial pressures, including rising living costs, stagnant real wages, and worsening housing affordability. These challenges are making it increasingly difficult for them to save or enter the property market. Against this backdrop, IF is urging the government to prioritise intergenerational fairness in its 2025 Spending Review.
Student finance reforms
One of the most pressing areas in need of reform is the student finance system. According to the latest OECD data, England’s higher education system imposes the highest costs on private households among OECD countries and ranks last for levels of state funding. This lack of government support has left many students struggling to afford basic necessities, with some skipping meals and considering dropping out.
To make the higher education system fairer, IF believes that the government should:
- Increase the student maintenance loan threshold
The parental income thresholds for student maintenance loans have been frozen since 2008. From April 2025, a student child of a single parent household earning the National Minimum Wage will no longer qualify for the maximum maintenance loan.
Cost-of-living pressures – such as high rents and the cost of essentials – have forced more students into part-time work, despite the detrimental impact excessive working hours can have on academic performance. For many, working longer hours is unavoidable, as the average maintenance loan no longer covers the average cost of student accommodation, let alone providing an allowance for food, clothing, or education materials.
To address this, the government should raise the annual parental income thresholds to £32,250 for the maximum maintenance loan and £82,700 for the minimum maintenance loan. Both thresholds should be indexed to the Consumer Price Index (CPI) to ensure they keep pace with inflation. These proposed increases only account for inflation between 2016 and 2024.
- Restore the real value of student maintenance loans
Beyond making maintenance loans more accessible, their real value must also be restored. According to the Institute for Fiscal Studies (IFS), the real value of maintenance loans has fallen by £1,500 between 2021 to 2023. This is due to forecasting errors in the Retail Price Index (RPI) that have not been corrected. As a result, students are receiving less financial support in real terms. Maintenance loan amounts should be uprated by 18% to correct for these errors and ensure that student support keeps pace with inflation. To put this figure in context, the State Pension increased by nearly 20% between 2020/21 and 2023/24.
- Reintroduce maintenance grants
The abolition of maintenance grants has placed a disproportionate financial burden on students from lower-income backgrounds. Under the current system, the poorest students graduate with an average of £60,100 of debt, compared to £43,600 for those from wealthier families. Meanwhile, the wealthiest 10% of students avoid debt entirely by paying fees upfront.
While increasing maintenance loans is necessary, it shouldn’t mean even more debt for the poorest students. To ensure a fairer system, maintenance grants should be reintroduced, with students from households earning under £32,535 eligible for a grant of £4,500. This amount would be deducted from their total maintenance loan entitlement.
While the government had previously indicated that they were considering reintroducing maintenance grants, we are yet to see any significant progress.
- Decrease the repayment rate
Students and young people face significant financial pressures due to the rising cost of living. The current student finance system exacerbates these pressures by imposing an additional 9% marginal tax rate on earnings above £25,000 (Plan 5 loans) and £27,295 (Plan 2 loans). By April 2025, a graduate working 40 hours per week on the National Minimum Wage (NMW) will exceed the repayment threshold, effectively paying an additional tax burden while still in low-paid work.
To reduce this financial strain, IF recommends reducing the repayment rate from 9% to 5%. Additionally, repayment thresholds for both Plan 5 and Plan 2 loans should be uprated in line with inflation, ensuring that loan repayments remain fair and proportionate to graduates’ earnings.
Social security reforms
Over the past two decades, government spending per pensioner has steadily increased, while spending on children and working-age adults has remained stagnant. Meanwhile, pensioner poverty has nearly halved and the wealth of the over-65s has continued to grow, while child poverty levels have remained largely unchanged. In response, IF recommends that the government:
- Replace the triple lock with a double lock
The triple lock on the state pension is intergenerationally unfair. Since 2011, the state pension has increased by 60%, while earnings and prices have only risen by 40%. As a result of more than a decade of triple-locked pension increases, pensioners are collectively £44 billion better off. Meanwhile, real-terms cuts to working age benefits, alongside policies like the two-child benefit cap, have contributed to sustained poverty levels for working families and children.
IF recommends replacing the triple lock with a double lock. The state pension should be uprated annually by CPI and in the long term should be pegged to 33% of national median earnings. If the state pension falls below this threshold over five years, it should be increased accordingly. This system would mirror the Low Pay Commission’s approach to updating the National Minimum Wage, ensuring fairness across generations.
- Apply the same uprating system to pensions and working-age benefits
On intergenerational fairness grounds, the uprating system for the state pension and working-age benefits should be the same. The value of benefits should be protected regardless of age, as using age alone is no longer a fair proxy for need.
- Reduce age-related disparities in the benefits system
The benefits system should not disadvantage young people. IF recommends:
- All Universal Credit recipients should receive Cold Weather Payments, regardless of age.
- Adults under 25 should receive the same Universal Credit rate as those over 25.
- Under-25s in private rentals should be eligible for the full Local Housing Allowance (LHA), not just the shared accommodation rate.
Young adults are increasingly likely to experience food poverty, struggle with debt, and face economic insecurity – there is no justification for them receiving less support.
- Remove the two-child benefit cap
Over the last 20 years, child poverty levels have not improved. In 2024, one-third of all children are projected to be living in poverty. Among large families (three or more children), 45% are currently in poverty. Removing the two-child benefit cap would lift around 500,000 children out of poverty and would cost the government £2.5 billion.
Help us to be able to do more
Now that you’ve reached the end of the article, we want to thank you for being interested in IF’s work standing up for younger and future generations. We’re really proud of what we’ve achieved so far. And with your help we can do much more, so please consider helping to make IF more sustainable. You can do so by following this link: Donate.
Photo by William Warby on Unsplash.