Ruth Curtice
Chief Executive at the Resolution FoundationWe all know that 2008 marked a turning point for the United Kingdom. But it was not, in fact, just an economic turning point. It was also a demographic one crucial for Britain’s generational compact. Just as the global financial crisis was destroying UK productivity, the population was also turning a corner, as the first of the baby boomers edged into their 60s. In 2007, the share of the UK population that was of working age peaked, and it has been falling ever since. Since then, both low productivity and an ageing population have contributed to making public policy hard. Moreover, as the population has included more old people and fewer younger people, our policy choices have favoured the growing ranks of the old.
Most obviously, the State Pension has increased where many other benefits have stalled or even fallen back. A full Basic State Pension stood just under a third more than the basic rate of support for a jobless working-age adult in 1996. Today, that differential is more like 90 per cent. More subtly, virtually every spending round in this century has given overwhelming priority to one service where age is the biggest predictor of usage: the NHS. The budget for health and social care has grown by 40 per cent in real per person terms (i.e. over and above price increases or population growth) between the financial crisis and last year. The arithmetical flipside was the deprioritisation of all sorts of services young people rely on – with tight budgets for things like further education, and many services, like Sure Start centres and youth clubs, shutting their doors.
Generational Compact
All these decisions were made during a period when the relative material position of the old was already improving, and while the promise that each generation would be more prosperous than the last was breaking down. The living standards of those over 65 have grown three times as much as those under 65 since the mid-2000s. The boomer generation were more likely than not to own a home by the age of 30. For the millennials born in the 1980s, only around 30 per cent own their home at 30.
If Andy Burnham is serious about demonstrating a change of direction in our society, he needs to take some meaningful early steps towards restoring the lost balance between the generations. We all know money is tight. That doesn’t mean that all change is impossible, only change that hopes to please everyone. It is still fully within the Government’s power to extend a helping hand to younger generations, but it can no longer pretend that it can do so without redistributing somewhat from the other end of the age range.
Here are a trio of specific ideas that, in combination, would constitute a serious start.
New Commitments
The first involves training an unflinching eye on the biggest problem on the spending horizon: namely, defence. If the UK is serious about hitting NATO targets for committing 3.5 per cent of GDP to ‘core defence’, we are in for a sustained reversal of the trend of falling expenditure, which eased the dilemmas of successive chancellors for decades on end – ever since the demobilisation that followed the end of the Korean War in 1953. If it is to be done, who is to pay for it? It surely seems fair to suggest that contributions be skewed towards those who were around to enjoy the long peace dividend, rather than to hammer those who were too young to be paying much tax before the endless savings began to run dry. How to do that? Balance a cut to National Insurance – paid only by those of working age – with an equivalent rise in Income Tax – paid by pensioners in the same way as everyone else. An up-down swap like this could make a contribution, with a 2p switch raising £6 billion. Over time, a more significant rebalancing – such as one in which employee National Insurance is ultimately abolished – could raise the bulk of the money needed for higher defence spending.
Key to Savings
Second, call time on the Triple Lock, which has left the State Pension bill £12.6 billion higher since 2012 than it would have been if pensions had risen in line with average earnings. The welcome reductions in pensioner poverty were seen before the introduction of the Triple Lock, and so cannot be credited to it. The Triple Lock makes the generosity of the State Pension a function of the volatility in our economy, ratcheting its value up when earnings or prices diverge unexpectedly from each other or grind to a standstill. Even absent an ageing population, it is not sustainable to have pensions growing faster, by design, than average earnings (on which much taxation is based). Moving to a smoothed earnings link from next year would save £650 million in the fiscal rule target year. That’s enough to almost treble current spending on the Jobs Guarantee and Youth Jobs Grant, and to thereby tackle the crisis that cheats a million young lives out of education, employment, and training, and the purpose that these things bring.
Houses and Homes
Third and finally, Burnham needs to tackle the housing crisis. His emphasis on building more social homes is overdue. But even with the most energetic building programme, today’s housing lists will remain lengthy for a very long time. Right now, the priority must be to support those stuck in expensive private rentals and to restore the dream of home ownership to a wider group of young people. The broken link between the Local Housing Allowance (on which support can be claimed) and actual rents must be restored. For those without family help towards a deposit, home ownership too often remains a dream. A Starter Deposit equity loan scheme, which provides first-time buyers with 5 per cent of the cost of a starter home, could make a huge difference – given the biggest barrier to home ownership is the deposit – at an Exchequer cost of a relatively modest £190 million a year.
There are, of course, many pressing challenges facing the old as well as the young. It is understandable why Burnham flagged England’s failing system of elderly care as a priority in his first speech as Labour leader. And yet, at some point or other, someone in politics is going to have to speak up full-throatedly for the interests of the young. The good news is that there are signs, in the very latest data, that earnings have improved for the youngest workers compared to the generation ahead of them. Combine that with bold policy action, and 2026 could be a real turning point for the prospects of Britain’s younger generations.
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