An intergenerational injustice is disuniting the United Kingdom.
Policymakers are withdrawing spending on younger and future generations, while increasing it on an older generation that is, in aggregate, the wealthiest in history.
The gap in the annual amount the government spends per child compared with a retiree has doubled over the past couple of decades.
By 2019, the UK government was spending only £14,655 on each child but almost £21,000 on each pensioner.
Old-age poverty has dropped dramatically to two million out of the 12 million over-65s, while child poverty has grown to 4.3 million – 31% of all children.
Office for National Statistics figures show that the median wealth of people in their early 60s is almost nine times that of those in their early 30s, while the over-65s have more than half of housing wealth, thanks to unprecedented house price growth and low interest rates.
Policymakers are also taxing younger generations very heavily.
Young people will see tax increases, this time by stealth, through the impending 10% rise in National Insurance contributions; the freezing of income tax allowances; and a reduction in the student loan repayment threshold – through inflation, the mechanism of ‘fiscal drag’ will significantly increase how much tax they pay.
Other recent changes mean that new students will face an extra decade of loan repayments – graduates will be in their 60s before they are free of student debt.
Why are we taxing our young so heavily when their living costs are so high?
A combination of policy inertia, silo-thinking, statutory obligation, political expediency and even generational self-interest has tempted central and local government into overspending and over-borrowing today, and discounting the future too much.
The days when a rapidly growing economy and a large, well paid working-age population were able to support a much smaller ageing generation in retirement have long gone.
Instead, we have created a gig economy, where work is precarious but bills are regular.
Rents are often higher than mortgage payments, while living costs take two-thirds of the average weekly essential expenditure for under-35s.
Young people have far less financial resilience than older generations to cope with a 25% drop in income.
In too many policy areas, public finance chiefs have continued to be over-optimistic, pushing hidden icebergs of spending, borrowing and pension liabilities into the future.
With more than £400bn in unplanned Covid-19 spending, an energy crisis, high inflation and now a European war, we are at risk of bankrupting the young.
Sharp rises in energy costs and inflation from the Ukrainian crisis compound this.
A combination of policy inertia, silo-thinking, statutory obligation, political expediency and even generational self-interest has tempted central and local government into discounting the future too much
Increasing life expectancy adds another economic pressure on the young.
Even after the pandemic, older generations are still expected to live longer, but more are living in poor health, meaning the costs of care and medicine continue to rise.
We need a new intergenerational social contract.
If we start assessing public policy through the lens of intergenerational fairness, using impact assessments, the taxation system could treat income and wealth taxation more fairly and force the benefits system to share public spending more fairly across generations.
We could then have a system that does not over-burden younger generations, while also protecting the poorest, whatever their age.
Angus Hanton is co-founder of the UK-based Intergenerational Foundation
