A new report, produced by Onward, a centre-right think tank chaired by Sir Simon Clarke, a former MP, entitled The Anti-Social Contract, highlights how the social contract is broken for young people. Daniel Harrison, IF supporter, economist, and author of Intergenerational Theft explains how this is a vindication of the Intergenerational Foundation’s campaign for intergenerational fairness.
Political reluctance
It would be fair to say that the vast majority of our political establishment are reluctant to talk about or even admit to any kind of intergenerational inequality. Instead, our political discourse tends to blame the individual for their circumstances with an extreme reluctance to admit systemic government failure.
However, the new Onward report sets out the stark reality admitting that our social contract is broken, and that despite politician’s deploying the rhetoric of an opportunity society, that “the reality for many younger people is increasingly one of collapsing dreams.”
The report exposes the clear government policy bias by admitting that “Britain has become dangerously tilted towards older age groups in both its politics and its policymaking.“ The report goes on to state that the failure to confront the country’s changing demographic reality compromises not only intergenerational fairness, but creates a wider threat to the medium to long-term sustainability of the state itself.
And the report also states succinctly “In the face of this, the British state is running a kind of giant Ponzi scheme, with young people as the victims.”
Of course, many of the issues raising younger generations today have been exacerbated by Conservative and LibDem policies in the past as well as the policy decisions being made by the current Labour government.
Even London’s Mayor, Sadiq Khan, has made a similar point about the housing crisis “It’s creating intergenerational inequality like we’ve never seen before. It’s shattering one of the bedrock principles Britain was built on: that if you work hard, you get ahead.” and admitting that intergenerational inequality has broken the social contract.
Mainstream media gets it
Diagnosing the problem – thanks to the hard work of the Intergenerational Foundation and others over the past 15 years – means that the mainstream media are now reporting the reality. That The Times, Telegraph, iNews and GB News (admittedly to the right of politics) are now admitting that Britain is a Ponzi scheme, you know that things are very serious indeed for Britain’s young people and future generations.
The Times recently ran an article on our pay as you go ‘unfunded’ pensions revealing The Ponzi scheme of public sector pensions: No money is being set aside for a liability that may amount to £5 Trillion.
The Telegraph also alluded to public sector pensions stating that Teachers’ gold-plated pensions are about to be exposed as a Ponzi scheme: Future taxpayers will be burdened with billions of hidden borrowing in the public sector.
Another Telegraph article also confirmed that Britain’s state pension Ponzi scheme faces a catastrophic collapse: The system is increasingly unsustainable – but no one dares to confront it.
Even GB News stated that The British state is running a Ponzi scheme right under your nose – and it’s a ticking time bomb.” Writer Renee Hoenderkamp commented that “The welfare state is a Ponzi scheme, and fewer and fewer people are contributing more and more to take out. It will, like all Ponzi schemes, collapse.”
You now see why the government is so keen on mass immigration (despite the rhetoric), getting more people into work, encouraging more people to have children., and economic growth as a panacea. Without an ever-growing pool of workers paying more and more tax the Ponzi scheme of government inevitably collapses.
And it’s not just Ponzi pensions (state and public sector). It is also the £2.7 Trillion national debt (with £100 billion+ a year interest payments), PFI schemes, and many other areas of government where the old are taking out at least £7.6 Trillion more than they put in as calculated by a Parliamentary Committee “The Intergenerational Contract Under Strain.”
The social contract is not just about fairness
The Onward report continued that renewing the social contract is not just about fairness but the viability of our nation. If no action is taken, people will pay ever more in tax, but public services will inevitably decline. (The apparent paradox of high taxes and underfunded public services was exactly the conclusion arrived at in my previous article Why broken Britain is a direct consequence of intergenerational inequality.)
But one extremely crucial point that the report does overlook is understanding taxation not in terms of individuals, but in terms of family units: This reveals that there are simply many more taxpayers today – which of course is exactly what the government wants to prop-up the Ponzi scheme.
In the post-war period 1945-2000, one breadwinner paid income tax on one income, and yet received public services such as education and healthcare for their partner and average 2.5 children. However, as the housing crisis really took hold post-Millennium and reached 8x incomes, that fundamentally changed society from single income households to dual income households, BOTH paying income tax, now having only 1.4 children, and therefore paying drastically more taxes per family unit, and yet receiving much less in public services for their smaller family unit.
The Onward report also highlighted the broader societal damage that the broken social contract inflicts on society and paints a future where the wealth of your parents, and the Bank of Mum and Dad dictate your success in life more than individual effort, and as a result politics and democracy itself are under threat. And this futility and lack of ‘agency’ supports my previous article showing how Young people’s despair is primarily due to the shattering of the intergenerational contract.
Perhaps most revealingly, the Onward report admits the systematic wealth transfer from young to old. “At the same time, political incentives remain skewed towards older voters. This reinforces a system in which wealth and public spending increasingly flow to those in retirement, and away from those starting families, building businesses, or saving for the future, who are being asked to fund services that may no longer be available once they reach old age.”
Solutions
The Onward report concluded that the only realistic way forward to fix the social contract and allow opportunity, was a fair rebalancing of the economy by building more homes, to reduce immigration, encourage family formation, and to start a mature conversation about rebalancing welfare entitlements with reciprocity at its heart.
But young working-age people are not sensing any reciprocity. On the one hand, whilst the previous Conservative government reduced individual NI rates, the current Labour government has increased employer NI contributions – which is a tax on young and working-age people in all but name – and as the IF reported “This is an obvious intergenerational unfairness in action and the Chancellor has chosen to further strap the young to pay for the [pensions] triple lock of the old.” But on the other hand, the Onward report admits that as things stand, there won’t be reciprocity as “the working-age population of today are paying high taxes to fund services that may simply not exist by the time they are old enough to need them.”
Magnitude of the political challenge
However, the Onward report admits the magnitude of the challenge to implement meaningful change as the demographic pressures that created the problem in the first place are being exacerbated by an ever-ageing population.
Part of the issue is that governments for many decades have normalised a society that transfers wealth from the young to the old. And this entrenchment makes it increasingly difficult to correct this imbalance because of the potential backlash from the grey voter.
And a toxic public discourse seems to make any minor rebalancing impossible, as the report noted – “A political and policy environment which is tilting decisively in favour of older cohorts has served to lock in wealth transfers to older age groups, as over the past decade, tax and benefit changes have reduced working-age incomes even as they have bolstered those of pensioners. Even transfers to older groups which are becoming fiscally unsustainable are politically near-impossible to unwind with even modest attempts to rebalance spending met with fierce resistance.” For example, we saw in stark terms the hysterical backlash to the Labour government’s attempt to remove the modest winter fuel allowance for better-off pensioners. Even though rationally this reform was justified, it was such an emotive issue, that it was reportedly Labour’s most unpopular policy, such that they have now capitulated to pressure from older voters.
Consequently, as the Telegraph reported, Labour’s policies are actually further entrenching intergenerational inequality: Baby boomers to open up even bigger wealth gap over working families: Boost to pensioners’ disposable income risks fuelling debate around generational inequality.
Change is desperately needed as the current situation is unsustainable. as the report notes, our society simply cannot function if young people lose faith in the system. The demographic trends are here to stay and will only progressively get more severe, and therefore this structural societal change requires a concerted policy response.
How best then to reframe the intergenerational debate? Rather than phrasing it in terms of a zero-sum game where there are only winners and losers, well-meaning narratives emphasise shared gains, intergenerational investment, longer-term security, and a stronger social contract – in other words investing in the next generation, for example by supporting them to have more children and put our public finances on a more sustainable path, given the demographic shifts facing our society. The problem here is that older generations tend to vote in their generational interests while young people tend to vote on issues that are important to them such as the climate crisis.
Keep campaigning!
Fundamentally, Ponzi schemes are illegal in business as highlighted by the recent prosecution for the UK’s biggest ever Ponzi scheme. So why should we tolerate a government-sanctioned Ponzi economy which results in enormous wealth transfers from the young to the old? It’s abundantly clear why governments around the world run government like Ponzi schemes (particularly the UK, US, Europe, Australia, Canada). It’s because it allows them to artificially enrich their larger core electorate (the old), at the expense of the young.
This elephant in the room is best summarised by one of the leading experts on intergenerational inequality, Professor Scott Galloway, New York University Stern School of Business. “We have I think the biggest problems in the west. If our young people aren’t doing as well as their parents, then what’s the point of any of this. I think the intergenerational theft and absolute cramming of the prosperity into the hands of seniors. People under the age of 40 on average are 24% less wealthy than they were 40 years ago. People over the age of 75 are 72% wealthier. And it’s not working. That’s an economy that’s been weaponised by rich people. So, I think we can address this issue, but it is the fundamental glitch in the system. It is the flaw. It is the immoral, corrupt part of our society right now is that we come up with excuses to continue to transfer wealth from the young to the old.”
The Intergenerational Foundation is starting to win the argument with mounting evidence of intergenerational inequality and the consequence that Young People’s Despair is Primarily due to the Shattering of the Intergenerational Contract.
But it’s also up to us as individual citizens to keep campaigning for intergenerational fairness and keep pressuring politicians to make the politically right decisions, not the politically easy decisions.
Daniel Harrison is an economist, analyst, and author of ‘Intergenerational Theft’.
Image courtesy of: Security and Exchange commission, U.S. Federal Govt. (en:Image:PyramidSchemeMS.jpg)
