Essay Competition winner: Has Britain robbed its children?

The winning entry from the New Statesman-Intergenerational Foundation A level essay competition.

In September, the New Statesman and the Intergenerational Foundation teamed up to run an essay competition for A level students. The topic was "has Britian robbed its children?" and the winning entry, by Conor Hamilton, is below.

A recent cover of the Spectator featured an indifferent teen being carried on the back of a speedy elderly man. The message is clear: young people are lazily relying on the old. One reason this narrative is so effective is that there is a widespread anxiety today’s children will not value and uphold the efforts of the generations that came before them. It plays on a fear that young people are not fulfilling their part of an intergenerational contract, preferring to live their lives selfishly. However, what if the breach of contract is the other way around? What if older generations have been living an unsustainably extravagant lifestyle, leaving little for those that will come after them?

The immediate evidence for this would be the UK’s national debt, which has increased from 34 per cent of GDP in 1991 to 90 per cent (pdf). This debt is so large that the interest we pay on it is roughly the same size as our defence budget. Unfortunately, the interest will only increase as our debt shifts to just short of 100 per cent of GDP, as it is predicted to have done by 2015 (pdf). It seems the taxpayers of tomorrow will be struggling with the debts of yesterday for a long time to come.

However, it is not only the profligacy of the last generation, commonly deemed synonymous with the previous Labour government, that will harm the young. The austerity measures pursued by today’s coalition are also unfairly weighted against young people. University funding and housing benefits for the young have been slashed, employment schemes have been abandoned and the Education Maintenance Allowance (EMA) has been scrapped in England. Meanwhile, pensioners are exempted from caps on housing benefit, pensions remain triple-locked and universal benefits such as winter fuel payments, free TV licenses and free bus passes, all remain untouched. None of those benefits existed 16 years ago. Strangely, the current deficit reduction plan shows little concern for those who will have to pay the money back.

It isn’t just governments that have acted irresponsibly. The past set of homeowners have done great damage as well. Aided by a tax-relief on mortgages and the sale of public housing, past generations found it relatively easy to make their first steps onto the property ladder. As a result, the market boomed and Britain developed a skewed economy. Martin Weale, a member of the Bank of England’s Monetary Policy Committee, found that if house prices had risen at the same rate as the stock market over the last 20 years, they would be 50 per cent cheaper today.

As a result, Britain’s homeowners have stopped investing in useful things like businesses, and have instead starting using their homes as an easy source of cash. Every time someone takes out a second mortgage or downsizes to make the most of their house’s increased value, they bring that over-inflated profit along, even though they have done relatively little to earn it. This cost is then paid by the people entering the market for the first time or looking to upscale. Yet again it is the younger generations that must over-pay because of the actions of the old - a cost which has been estimated at £1.3trn pounds in total. This has dire consequences for the distribution of wealth, which has been shifting in favour of elderly in recent years. A Bank of England study (pdf) found that in 2005, the average wealth of people aged between 25 and 34 had fallen to a third of its 1995 value, whereas the wealth of those aged 55-64 had tripled.

However, homeownership is not the only area in which the older generations have pulled the ladder up behind them. In Britain’s new, globalised “knowledge economy,” places at university are both extremely important and increasingly scarce, yet students now also have to borrow £9,000 to pay for their tuition, whereas those studying 15 years ago would have received it for free. As a result, a student graduating from a three-year university course will have an average debt of £42,000 (pdf) after living costs are factored in. Britain’s politicians have begun penalising those who want greater knowledge and skills, in an era when globalisation makes that education vital.

A lack of affordable housing and heaps of private and public debt won’t just deprive the young people of the chance to accrue material wealth, it will also delay their chances of becoming adults. As Shiv Malik and Ed Howker note in their book Jilted Generation, being an adult is about “family, savings, community, realizing ambitions and ideas, stability, even having children.” Adulthood is about feeling and being in control of your life, an ideal that is now out of reach for many. Two-thirds of people aged 20 to 45 believe they have no prospect of getting on the property ladder and 2.8 million 18 to 44 year olds are postponing children until they can afford a home (pdf). Many of the things that indicated adulthood to previous generations are being denied to this one. Britain is robbing its children of the chance to be grown-up.

Britain’s children won’t be the only ones that are hurt. All generations rely upon each other at some point in their life. When young, we rely on our parents to care for us and teach us right from wrong. When middle-aged we have to work, so that we can provide for the young and the elderly who can no longer take care of themselves. Then, when we are too old to work ourselves, we in turn will rely on those in work to care and provide for us. We live amid a web of loose social agreements about when to give and receive, underpinned by mutual advantage and tradition.

Britain has robbed its children. It has stopped them from buying a house and failed to support them in the scramble for education and jobs in a globalised world, while saddling them with private debt. Today’s twenty-something, who should be enjoying the best years of their lives, are trapped in uncertainty. If they manage to break out of this uncertainly, they find themselves citizens of a nation riddled with debt that will take until at least 2046 to pay off. It would not be surprising if, when this generation comes to take control of the country, they will lacks the funds, or the will, to carry on providing the generous support currently given to the elderly. Those now in control of Britain have not only robbed their children, but potentially stolen from themselves as well.
 

The austerity measures pursued by today’s coalition are unfairly weighted against young people. Photo: Getty
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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.