The boomer generation hit the economic jackpot. Young people will inherit their massive debts

Young people in Britain could be forgiven for despairing at the financial pressures they face – and feeling that previous generations enjoyed a much fairer economic environment. Then just to add to their worries about home ownership and a precarious jobs market, along comes the gloomy announcement that the UK’s public debt is now 100% of GDP^[1].

That debt burden^[2] will have to be carried by tax-payers for decades to come. Paying the interest – just the interest – of the country’s debt currently accounts for around 7.3% of public spending^[3]. That’s more than what is spent on^[4] defence (4.8%) or transport (3.8%).

And while some of what’s left will go to towards essential future public services, it will also go towards fixing problems caused by a historic lack of public investment^[5] (less money being spent by previous generations) in water^[6], railways^[7] and other crucial infrastructure.

In fact, in the 1980s much of that infrastructure was used by the UK government to help finance itself, with assets including British Gas sold off at a bargain price^[8]. Those baby boomers and older generations who could afford to buy shares often made a decent profit^[9].

There are other kinds of costs that today’s younger generations have had to bear too. During COVID lockdowns, universities and schools were closed as the young were forced to stay at home^[10], predominantly to protect the elderly. They have lost the freedom to live and work in the EU after 60% of retired people voted for Brexit^[11], while most young people voted against. Leaving Europe has also made the UK less well-off^[12].

But not everyone is poorer. In the last 20 years, the average income of pensioners has increased on average by more than 50%^[13], while that of working-age adults has risen by less than 10%. The median income of pensioner households is now higher^[14] after housing costs than that of households with children.

Most of the country’s wealth is now in the hands^[15] of older people. In 2018, one in four people aged over 65 was living in a household with a total wealth of over a £1 million pounds^[16]. Poverty rates of pensioners are now lower^[17] than for the rest of the population.

Yet pensioners receive all sorts of unconditional discounts and benefits, such as free or discounted public transport^[18]. Their income is exempt^[19] from national insurance contributions, and there is a triple-lock^[20] on state pensions, which is guaranteed to grow faster than work income.

Until recently, the winter fuel allowance^[21] meant that anyone born in 1944 or before received £300 (reduced to £200 for younger pensioners).

While there is mild popular support^[22] for limiting the fuel allowance^[23] to poorer pensioners^[24], the question of recouping money from older people remains highly sensitive^[25]. (Back in 2017, the then prime minister Theresa May had to quickly U-turn^[26] when she suggested using pensioners’ wealth to finance the rising cost of care^[27].)

One reason for this reluctance to prise money from older people may be that while most pensioners are doing better (compared to the working population) this is not true of the poorest ones^[28]. Also, some pensioners do not claim the benefits they are entitled to^[29], and the last thing a civilised society wants is to let its older people freeze.

But the apparent economic divide raises a broader question about inter-generational justice^[31]. What does one generation owe the generations that follow?

And it’s not just about money. Global warming^[32] is another thing older people have not spent most of their lives having to pay for, with the burden for repairing environmental damage again falling mostly on the young^[33].

Perhaps a fair philosophical approach would be that it’s OK to leave certain costs to be paid in the future if the next generation can generally expect to live longer and in better health, with more consumer choice and comfort, and an improved quality of life.

But this does not seem to be the expectation right now. Incomes have stalled^[34], and so has life expectancy^[35], while housing prices have not been so expensive relative to earnings since the 19th century^[36].

In that sense, many people, however old they are, would probably sympathise with young people today. And they may even argue that it’s time for the government to focus on policies that explicitly benefit the young – like house building, different forms of taxation^[37] or subjecting pension income to national insurance^[38].

There could also be a change in fiscal rules^[39] to allow for more investment in national infrastructure^[40], higher taxes on fossil fuels to pay for the energy transition^[41], or sharing the cost of funding higher education more evenly among all graduates^[42], regardless of when they got their degree^[43].

Such changes would provide a dramatic shift towards an economic system which seeks to redistribute wealth not just among citizens – but between the generations.

References

1. ^{^} 100% of GDP (news.sky.com)
2. ^{^} debt burden (www.ons.gov.uk)
3. ^{^} around 7.3% of public spending (obr.uk)
4. ^{^} what is spent on (ifs.org.uk)
5. ^{^} lack of public investment (ifs.org.uk)
6. ^{^} water (www.bbc.com)
7. ^{^} railways (www.ft.com)
8. ^{^} at a bargain price (www.tandfonline.com)
9. ^{^} made a decent profit (onlinelibrary.wiley.com)
10. ^{^} forced to stay at home (www.gov.uk)
11. ^{^} voted for Brexit (www.bbc.com)
12. ^{^} less well-off (obr.uk)
13. ^{^} more than 50% (ifs.org.uk)
14. ^{^} now higher (www.health.org.uk)
15. ^{^} in the hands (www.ons.gov.uk)
16. ^{^} over a £1 million pounds (fullfact.org)
17. ^{^} now lower (ifs.org.uk)
18. ^{^} discounted public transport (www.ageuk.org.uk)
19. ^{^} exempt (www.gov.uk)
20. ^{^} triple-lock (ifs.org.uk)
21. ^{^} winter fuel allowance (www.bbc.co.uk)
22. ^{^} mild popular support (yougov.co.uk)
23. ^{^} limiting the fuel allowance (theconversation.com)
24. ^{^} poorer pensioners (www.bbc.com)
25. ^{^} highly sensitive (news.sky.com)
26. ^{^} quickly U-turn (www.theguardian.com)
27. ^{^} rising cost of care (yougov.co.uk)
28. ^{^} poorest ones (ifs.org.uk)
29. ^{^} they are entitled to (policyinpractice.co.uk)
30. ^{^} fizkes/Shutterstock (www.shutterstock.com)
31. ^{^} inter-generational justice (www.annualreviews.org)
32. ^{^} Global warming (www.core-econ.org)
33. ^{^} mostly on the young (beatricecherrier.wordpress.com)
34. ^{^} Incomes have stalled (www.bbc.co.uk)
35. ^{^} life expectancy (www.kingsfund.org.uk)
36. ^{^} since the 19th century (www.ft.com)
37. ^{^} different forms of taxation (www.ft.com)
38. ^{^} national insurance (ifs.org.uk)
39. ^{^} fiscal rules (www.ft.com)
40. ^{^} national infrastructure (www.instituteforgovernment.org.uk)
41. ^{^} energy transition (www.lse.ac.uk)
42. ^{^} all graduates (wonkhe.com)
43. ^{^} got their degree (www.gov.uk)