Life & Society
The great generational robbery
Published 05 March 2007
Expensive pensions, no hope of getting on the housing ladder, and tens of thousands of pounds of debt just to go to university. Have the under-35s been mugged by the baby-boom generation that went before them?
Many of you reading this will be thieves. And a good proportion of you will be victims. There is no mugging involved, but a new form of wealth exchange, which economic observers are calling generational robbery: the financial phenomenon whereby one generation - the baby boomers - enjoyed a whole range of economic benefits that are now unattainable to those growing up behind them.
If you are over 50, you will recall a blessed carelessness about money in your twenties and thirties that you probably took for granted at the time. You had free university tuition and, if your parents were sufficiently poor, full university maintenance grants. To that, add free dental care; cheap (relatively) houses with gardens; mutualised building societies; statutory retirement at 65 (probable retirement well before then); and final-salary private pensions. You may be unaware of your complicity, or think it unfair to be blamed for the social and political choices made by others of your generation, but the fact is that the under-35s are facing an unprecedented quadruple whammy: expensive pensions, little chance of getting on the housing ladder, a legacy of student debt and high levels of taxation - a combination of financial burdens and concerns that never clouded the youth of their parents.
Consider a 22-year-old graduate. Let's call him Sam. For him, as for his peers, the student debt he left college with was £13,000 (for others today it is closer to £20,000), incurred to repay fees charged at a time when the lifetime payback for having a university degree is decreasing. He is paying for a service that is worth less for him than for the older generation that got it for free and then abolished grants. In addition, the latest wheeze for funding universities is to ask the likes of Sam to donate money to his alma mater. It would be comical to most graduates, were their financial situation not so dire.
With his rent payments, Sam is probably paying off the mortgage of an older landlord who benefited from cheaper house prices. Only a decade ago he would have been four years off becoming a first-time buyer himself; now it is 12 years. Again, his eventual purchase will be a transfer of hundreds of thousands of pounds from young to old. In his tax payments - which will rise by 1.5 per cent of GDP or the equivalent of 4p on income tax in his lifetime - he'll be paying the pensions of a golden-aged era of retirees who stood by as similar pensions were closed to him. Not that he will need much of a pension, as he may be working into his seventies anyway.
If Sam wants to become a homeowner, he'll have to work fast. The first rung of the housing ladder is rapidly disappearing. Indeed, with mortgage terms being extended to 30, 40 or even 50 years, it is questionable whether the ladder exists at all. More of those struggling to buy property today should expect to stay much longer in the first flat they struggled to buy than previous generations. High house prices are not creating wealth - they are merely redistributing it to the old and rich from the young and poor.
Demographics show the root of the problem. On the Office for National Statistics website there is an animation which shows age distribution in Britain. The population pyramids that once showed many young people at the bottom supporting a small number of older people at the top is being flipped on its head. The result is an older generation with a stronger political voice and politicians who target the greater voting power of that ageing group, to the detriment of the relatively voiceless young. At the time of the 2005 election, MORI calculated that the over-55s had 4.2 times the voting power of 18- to 34-year-olds. We are sliding towards a gerontocracy.
Other European countries are further down the road. The balance in favour of older voters will make Germany a gerontocracy within seven or eight years, according to the economist Hans-Werner Sinn. The signs are already there. Nuremberg is building swingless playgrounds for senior citizens in their parks and an advocacy group for older people, the Grey Panthers, nearly made it into the Berlin regional parliament in last September's elections. In response, young Germans have formed the Foundation for the Rights of Future Generations, and will this year try to get the Bundestag to change the constitution to protect those rights.
In the UK, the number of people over 40 will overtake the under-forties by 2021. By 2031, the average age of the population will climb from 39 to 44, and over-65s will constitute nearly a quarter of the population, compared to the sixth they comprise now. This is yielding a new age-related politics. Most headway has been made in the part of Britain that is ageing fastest: Scotland. The Scottish Senior Citizens Unity Party already has a presence at Holyrood and is ramping up the number of its candidates for this May's elections.
The hand of an ageing population can be seen in certain postwar changes to the British tax system. According to Martin Weale, of the National Institute of Economic and Social Research, the amount of tax on wealth - such as housing, which is usually owned by older people - has fallen dramatically since the end of the war. Meanwhile, taxes on those who work (normally younger people) have risen steadily. Some pensioners are very poor. Most are not. The greatest proportion of wealthy people in Britain are over 55; 70 per cent of those worth more than half a million pounds are over 55. Wealth statistics in Britain are sketchy, partly because they are derived from data on inheritance. However, the last set of official figures showed that, on average, 55- to 69-year-olds had £109,000 in amassed assets - treble those of 25- to 39-year-olds. Over-55s are the biggest owners and traders of shares.
To some degree, that is to be expected. The older you are, the longer you have had to amass assets. But these figures do illuminate the reality behind those depictions of a poverty-stricken old age. Certainly, there are those who need help. But whereas 27 per cent of pensioners were classified as living in poverty a decade ago, that is now down to 17 per cent.
It is possible, on the one hand, to recognise the very real issue of pensioner poverty, while also pointing out that there are huge numbers of middle-class pensioners who have done tremendously well out of the housing market, for example, and who are now providing rather good custom to Saga and the QEII - "SKI-ing" (Spending the Kids' Inheritance) their way through a golden retirement.
This is the economics of the age we live in, a political time bomb that parties ignore at their peril. David Willetts, the Conservatives' licensed freethinker, has floated the idea of generational tensions replacing class difference. Some Lib Dem activists are debating it, one of them blogging recently: "Already half of the tax the under-35s pay is being spent on pensions, healthcare and social services for the elderly, and this burden will increase with demographic change. Younger generations are beginning to perceive this as generational theft on a massive scale." Some point out that the money for supporting asset-poor pensioners may be more sensibly found from a wealth tax on cruise-addicted middle-class pensioners, rather than younger workers. Labour supporters, meanwhile, point out that the government has spent more on the younger generation through investment in schools, although single, childless young adults are not the winners in Labour's quiet redistributions.
The economic impact of this glut of postwar children is familiar to those in the City, who refer to it as the "pig in the pipe" - the visible signs of the baby boomers charging through the decades. They embraced social liberalism, flower power and a large state when they were teenagers, and low taxes, a smaller state and loadsamoney individualism in their period of high disposable income. Then, on the realisation of their own mortality, up goes spending on the health service and pensions. Fifty- t0 64-year-olds have the largest carbon footprints - 20 per cent bigger than other age groups' - although they care the most about climate change, a phenomenon that will not affect them.
Ultimately, as pensioners take the justifiable decision to fight for their rights, it should be no surprise that younger generations do the same. But they have yet to do so in Britain. Weale suggests they may be too busy working, or don't believe in politics. Either way, apathy is costing them. Or is it poetic justice that live-for-today youngsters are losing out to a selfish generation? Perhaps we are seeing the scary sight of a generation that has been rather brutal in getting its own way squeezing everything it can out of its children.
Faisal Islam is economics correspondent for "Channel 4 News"
Baby-boom buzzwords
skiing the pursuit of happiness, paid for by "spending the kids' inheritance"
ipod not an MP3 player, but the condition of the under-35s, who are "insecure, pressured, overtaxed and debt-ridden"
kippers "kids in parents' pockets eroding retirement savings"
generation nest the nest generation is going back to the parental home
Illustrations by A Richard Allen
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