The 32-year-old Labour MP and Cabinet Office minister Josh Simons declared last week that the outlook for people under 50 in the UK was “frankly, shit”. A survey released today by the insurance giant Axa contains a statistic that suggests his prognosis is, if anything, not bleak enough.
The Axa survey results imply that a third of all workers aged 16-24 are already thinking about retiring early due to ill-health. This is not the only survey to produce this result: a recent Lancaster University study found that 43 per cent of 16- to -24-year-olds in work thought their health was deteriorating and likely to push them out of work in future. What’s especially concerning is that these were surveys of people in work; Britain already has almost a million people aged 16-24 who are not in work or education, and more than a quarter cite ill health as the reason. This is a level of youth inactivity not seen since the global financial crisis, and there are clear signs it is going to get worse.
These and other statistics about young people’s employment and finances suggest Britain has a deep problem of economic hopelessness among the young. The high cost of housing and education, paired with low expectations of wage growth and high marginal tax rates on the extra income that aspiration and effort bring, are reflected in young people’s motivation to train or to work, and in how they think about their economic future.
One in three workers aged 18-25 is not paying into a personal or workplace pension, for example. A significant proportion of young workers are deliberately opting out of pensions they have been auto-enrolled into, either because they can’t afford to save anything now, or because they see no point in doing so for the foreseeable future. They risk arriving at retirement without anything but the state to rely upon.
At the same time, the proportion of pensioners living in private rentals is expected to treble by 2041 – an additional 1.2 million people who will not be earning anything, who will need their local authority to pay their rent, and whose mental and physical health will be worse as a result of living in poor-quality housing over which they have no control.
Graduates can still expect to earn more overall, but the fact that tuition fees will now rise with inflation each year, and the extension of the terms of the loans, mean this advantage is to a great extent removed by repayments that function effectively as a graduate tax. Using the future to pay for the present is expensive: students who graduate at the end of this parliament will pay about £14,000 over 30 years to cover about £5,000 in extra fees, according to the Intergenerational Foundation.
That’s the position the UK is now in: we continue to ask that the growth of the future will cover the debts of the present, even though it’s increasingly clear this won’t happen. This was made very clear in the most recent OBR report on fiscal risks, which stated that the UK has lost the ability to stabilise its debts unless we run a large and consistent budget surplus (we haven’t run a surplus at all since 2001).
It’s clear that this is a country in which lots of people need welfare, and there are strong arguments for spending more on parts of the social safety net – raising half a million children out of poverty, for example. But we can’t pretend that this doesn’t come at a cost to the future those children, and all the other children, will inhabit. If you raise taxes in order to spend more on welfare, you are taking money from people who are able to accrue savings and giving it to people who can’t. Savings are investments, and investment is economic growth. If you limit capital accumulation with higher taxes, you get the money to do good things now, at the expense of future investment. People who are old now are rational to ask for more bus services or a triple-locked state pension, but people who won’t be old for 50 years are also rational to ask if they will be able to expect the same level of state spending.
This question of fairness is key because we have a tax system that redistributes wealth from the young to the old. National Insurance is still thought by many people to be a pot into which the nation puts its retirement funds, but it isn’t: your National Insurance contributions go to people who have already retired. For a long time we have been able to sustain that fiction, because workers have comfortably outnumbered pensioners. That relationship is now breaking, and by 2050, when the UK has more than 15 million people of pensionable age, it will be insupportable. When there are many millions more pensioners than children, the idea that the future can still pay for the present will seem like a bad joke.
[Further reading: Tax the old]
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