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The coming battle between old and young

Twentysomethings face living standard squeezes, while those in their 60s have never had it so good.

In the First Thoughts column of the magazine this week, I wrote about an idea which is currently gaining ground: that the young are being squeezed at the expense of the old.

Of all the arguments I have with my parents - both retired and in their sixties - the most intractable is whether they are the luckiest generation who ever lived. Having raised four children, they don't feel rich. Yet they live in a mortgage-free house and receive pensions from their former employers. They both grew up in houses with no TV or indoor loo, yet are currently in New Zealand, visiting their grandchildren.

I can't imagine my retirement will be anything like that. For a start, I remain stubbornly off the housing ladder and it will stay that way while London prices average £406,424 and lenders ask for a 25 per cent deposit. Lord knows what state the NHS will be in by the time I really need it. In the next few decades, the bill for Labour's assorted PFI follies will land on my generation's doormat. Pension? Ha!

This divide has been highlighted before - notably in Shiv Malik's and Ed Howker's book Jilted Generation - but it's becoming more stark as the coalition's economic policies hit the young hard. While graduates get saddled with thousands of pounds of debt and turfed out into a contracted jobs market, pensioners have winter fuel allowances and bus passes doled out to them without means-testing. As Daniel Knowles wrote in the Telegraph on 12 March: "It is a painful irony that the youngest government in history seems to be engineering such a spectacular flow of money towards the oldest."

All this is my way of saying that the mansion tax sounds like a sensible idea, even if it will affect the older generation disproportionately. When I read about Joan Bakewell, who bought a house for £12,000 that is now worth up to £4m, I struggle to empathise with her pain at the thought of being forced to downsize. I wish I knew what it's like to be sentimentally attached to a home but I've just moved into my fourth flat in five years.

Don't cry any tears for me - my twenties involve more skinny lattes and foreign holidays than my parents' ever did - but don't cry for the "asset-rich, cash-poor" baby boomers, either.

The piece I referred to, by Daniel Knowles, is worth reading in full. It explains how housing and childcare costs skew the appealingly simple picture of higher-rate taxpayers in middle-age as "rich" and pensioners as poor:

Most of those at the bottom of the income scale are actually pensioners, with lots of assets and relatively few outgoings - £25,000 a year is a lot if you have no mortgage to pay. They are getting off free, laughing as they swipe their free bus passes on the way to the bank.

Which brings me to my point: the Chancellor thinks that he is spreading the pain evenly, according to income. But he is actually spreading it unevenly, according to age. The people bearing the brunt of this Government's spending cuts and tax rises are young families. If they are poorer, their tax credits are frozen, their teenagers have lost the Educational Maintenance Allowance, VAT has gone up and the services they depend on - the school system, the nurseries and so on - are being starved of funds (even as the NHS, which old people use, gets more). If they are slightly richer, it's the child-benefit cut, the public-sector pay freeze, petrol taxes and the devaluation of the pound that hurt most.

It is a long-established principle that, as Adam Smith wrote in The Wealth of Nations, "the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion". But what Mr Osborne's policies prove is that we struggle to properly define who "the rich" are. Because we ignore age and wealth, "progressive" policies such as the child-benefit cut often aren't; they don't genuinely reflect ability to pay.

By coincidence, Saturday's Financial Times picked up the theme, splashing on an analysis of living standards which showed that the "disposable household incomes of people in their 20s have stagnated over the past 10 years just as older households are capturing a much greater share of the nation's income and wealth".

The result is that "the median living standards of people in their 20s have now slipped below those of people in their 70s and 80s". And as Alistair Darling told the paper: "You can't honestly say to younger people any longer, you'll do better than your father or mother's generation." The word "alienation" increasingly crops up, and you can see in the student protests and movements such as UK Uncut that some youngsters are beginning to vocalise their feelings of being dealt an unfair hand.

While this idea is not new -- see Shiv Malik and Ed Howker's Jilted Generation or David Willett's The Pinch -- it is likely to become increasingly bitterly fought terrain as austerity measures bite. The conventional political wisdom is that because older people are more likely to vote than younger ones, it is safer to target the latter with potentially unpopular measures. (There's also something to the fact that most heavyweight political commentators are of a certain age... ) George Osborne has taken his axe to a raft of benefits aimed at the working population - such as child tax credits - the goodies handed out to pensioners, such as free bus passes and winter fuel allowances, have been left untouched.

The FT pointed to Britain moving to a "family welfare" model, with the younger generations relying on the elder more, as happens in some Mediterranean countries. But, as John Hills of the LSE points out, this hurts those who can't, for example, rely on the Bank of Mum and Dad for a housing deposit, or help with university costs:

"The thing to focus on isn't so much the generational conflict itself, because a lot of the wealth of the previous generation will be passed down, or is being passed down... it's the people who are locked out of that in both generations. It's clearly harder as a young person if you don't have that kind of family support."

These are complicated issues, but a clear picture emerges: that 20, 30 and 40-somethings are bearing the brunt of the coalition's economic policies. But which politician is brave enough to make that argument?