Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science. A second edition of his book The Pinch was published last year.
One of the biggest challenges the Government faces is to offer young people the same kind of opportunities that the Baby Boomers enjoyed when we were young. The pay of young workers is no higher than it was ten or fifteen years ago. And getting started on the housing ladder is much harder – though the welcome announcement in the Prime Minister’s Conservative Conference speech is a bold attempt to tackle this.
The virus is having dramatically different effects on different generations. Old people are much more likely to get severely ill. But young people are taking a much worse economic hit. Today, the Resolution Foundation, in partnership with Nuffield Foundation, produces our annual generational audit tracking changes in the balance between the generations.
We show that if we turn from physical health to mental health, the virus is actually having a severe health effect on young people too. The proportion of 18-29-year-olds experiencing poor mental health has increased by 80 per cent during the pandemic
One reason is that they are much worse affected by lockdown. Young people have half the living space of older people and half the chance of access to a garden. They are less likely to have their own access to their own desk space. So the response to the virus has hit their mental health very hard.
We at the Resolution Foundation have shown in successive reports that young people have been increasingly concentrated in a few sectors which depend on human contact – retail, hospitality, and social care. Even before the current crisis, it was bad for their long-term prospects that so many were in those sectors whilst older workers were more likely to be in high pay high technology sectors. But it has now left young people severely exposed to the virus. It must be a high priority to give them better chances of skills and training for other sectors.
But it is not just about young workers. Another group turn out to be badly affected too – workers in their sixties. They may have already been moving to the periphery of the jobs market, perhaps working to boost a meagre pension entitlement. Their incomes have also been hard hit and they too are finding their mental health badly affected. These people often have a lot to offer as well.
The Treasury’s response to the virus has been very well distributed across the generations. The £71.5 billion worth of crisis income support delivered by the Government this year has been shared across generations. Young people have been the biggest beneficiaries of the furlough scheme.
The boost to the Universal Credit has been worth most to families with younger children – workers in their early 30s and late 40s receiving the most support of all. That makes it even more important that the unwinding of these measures is also done fairly, and delivers for the younger generation who are taking the worst economic hit.
The last decade has seen a massive and indefensible shift in the balance of the benefit system. The triple lock for pensioners has ensured that their benefits grow remorselessly. For the first time in recorded British economic history, the disposable income after housing costs of the average pensioner is higher than the average working age family.
The poorest twenty per cent of pensioners are better off than the poorest twenty per cent of families as well. Since 2015, pensioner benefits have on average gone up by £200 a year more than inflation but, for families, it is £200 less than inflation. This is not a fair deal between the generations. It is one reason that the Government temporarily boosted the Universal Credit of families during the crisis.
It is now proposing to reverse this whilst the triple lock remains untouched. That is wrong. The Chancellor is right to remind us that money is limited, and that means we have to be rigorous in setting priorities. Systematically prioritising one age group over the rest for year after year breaks the contract between the generations which holds a society together.
The widening generational gap in incomes is matched by what is happening to our assets. This is, I believe, the most important single change in Britain’s economic and social structure over the past 30 years.
Until the 1980s, our wealth was about three times our national income. But now the value of our assets has shot up to over seven times the value of what we produce. This has changed our country profoundly. It is why it is harder to save to buy an asset out of earnings. It used to take three years to save from average earnings enough to get a deposit for a house, but now it is 21 years. It means inheritance becomes a more important route to wealth.
And as most of the wealth – the houses and the company pensions – are in the hands of the Boomers, it means that the generational gap has got wider. Our report has powerful new evidence of the size of these trends. Someone getting into their thirties in the last decade had 25 per cent less real total wealth than someone reaching the same age a decade earlier. But a Baby Boomer getting into their sixties had 50 per cent more wealth than someone getting to the same age ten years before them.
It was bad enough already before the crisis. We must not let the virus exacerbate these trends still further. We need to help younger people get the skills they need to get by in a rapidly changing economy, including the opportunity to get into both further and higher education. I very much welcome last weeks’ bold proposals to boost access to level 4 and level 5 qualifications, between A level and a full honours degree. I also welcome this week’s proposals to help young people get started on the housing ladder.
But we can do more. We should have more short courses for young people out of work now. We must have a fairer balance in our social security spending. And when it comes to paying for the crisis measures, as we must, the taxes must not fall on younger workers.
It is right to expect affluent older property-owners to make a contribution. We cannot increase taxes on earnings, but not taxes on wealth when earnings are stagnant and assets have been booming. That should not be done out of hatred of wealth or in pursuit of generational war. It is just that if taxes have to rise we cannot expect the less affluent young to pay and to exempt the affluent old. The health effects of the virus have been harshest for the old. We must not let its long-term economic effects be harsh on the young.