1 year ago
88
The promise that living in an affluent society with a healthy economy holds out is that successive generations will enjoy ever-greater opportunities. But in the UK that intergenerational covenant is under threat, thanks to a housing market that means falling numbers of people will own their own home, and an ageing society in which today’s young people will shoulder the burden of higher taxes to meet the health and care costs of their parents’ generation. Sir Keir Starmer is right to focus on this as one of the most important issues a Labour government must address in his interview with the Observer today.
So many factors are against today’s young people. First, there are the inherently difficult economics of an ageing society, the product of falling birthrates. Britain will need to spend a higher proportion of GDP on healthcare and pensions as our population of older people increases, with fewer working-age taxpayers to shoulder these costs. And people in their 20s and 30s will not have the same private pension provision as this generation of retired workers, many of whom have benefited from generous defined-benefit schemes long since closed to younger workers.
It is hard for governments to do too much about falling birthrates, save for making it easy for people to have children when they want to. But policy choices have actively made the lot of this generation harder. House prices have increased dramatically: if the price of a supermarket chicken had increased at the same rate since the late 1960s, it would today cost more than £50. Rising house prices benefit homeowners – delivering significant windfall wealth – at the expense of those who cannot afford to buy their own home. Some people in their 20s and 30s have been cushioned from this effect because they can borrow equity from their parents. But the high cost of housing is having a profound impact on the economic wellbeing of young people today.
Renters in the UK pay some of the highest rents in Europe. Young people are prevented from moving to where the economic opportunities are because the housing is too expensive and they cannot afford a rental deposit. The proportion of people living in privately rented housing has doubled in the last 20 years. More parents will never be able to afford to buy their own home, meaning they and their children face years in insecure housing, forced to move when their tenancy comes up and at risk of being priced out of the vicinity of friends, family and their children’s school. Growing numbers of people will reach retirement with neither an entitlement to social housing nor having paid off the mortgage on their home, with insufficient pension provision to meet the costs of private rent.
These housing market effects are compounded by the education system and the labour market. Even though taxpayers will on average end up subsidising the average undergraduate degree to the tune of more than £20,000, the high level of fees and interest on student loans mean many university students today will pay an extra 9% of their income above the student loan threshold towards the cost of their higher education for most or all of their working lives. For young people who do not go to university, there is nothing approaching that level of subsidy and they do not get the pastoral support with the social transition to adulthood that comes with studying away from home. Thanks to the UK’s weak economic productivity, there are too many low-paid, entry-level jobs offering poor progression prospects that rely on school leavers downgrading their aspirations.
These issues urgently need to be fixed. But British politics in recent years has lacked the vision and leadership required to do so. The housing market needs reform: a huge public investment in building affordable housing for rent on a similar scale to the council housebuilding programmes we saw decades ago, stringent protections for renters that improve the quality of privately rented housing and offer long-term security, and measures to tackle the under-taxation of housing that has turned homes into financial assets at the expense of places for people to live. A diet of “help to buy” programmes that target a small number of people who can almost afford to buy their own home, but inflate prices further, – the staple of the last 30 years of government policy – will not cut it. And the government needs to tax the windfall wealth of the baby boomers who have done so well out of the housing market and generous pension schemes to give better entitlements to post-18 education and training to all young people, not just those who go to university.
The problem is that politicians of all stripes have been incentivised to tread lightly with baby boomers because of their political power as a constituency. They generally do not want to see their house prices fall as a byproduct of greater housing affordability, nor are they inclined to pay more tax on their assets to fund opportunities for the next generation. But our country’s future depends on the next government being brave enough to level with voters about the tough choices we face. If we are not prepared to tolerate a redistribution from the older to the younger generation, there will be painful consequences ahead.
English (US)