13 November 2023

Justice for the young!


In 1919, a letter appeared in the Times. It warned that in the wake of the Great War, Britain faced a second and more subtle crisis: it was living  beyond its means. ‘It is so easy to live on borrowed money; so difficult to realise that you are doing so,’ wrote the sender. ‘It is so easy to play; so hard to learn that you cannot play for long without work. A fool’s paradise  is only the ante-room to a fool’s hell.’  

The author appealed to Britain’s wealthy classes: ‘They know the danger of  the present debt: they know the weight of it in the years to come.’ So, he  suggested, they should voluntarily sacrifice one fifth of their assets to pay down that debt, in the interest of the country and of future generations. 

There were two extraordinary things about this letter. The first was that the anonymous author, ‘FST’, was in fact the Financial Secretary to the Treasury, Stanley Baldwin. And the second was that he really did practise what he preached, donating a fifth of his wealth, the equivalent of roughly £5m today, to cut the debt, and urging others – largely unsuccessfully – to do the same. 

Today, Britain is a vastly wealthier place than it was in Baldwin’s time. In 2021, the last year for which we have data, the UK’s net worth rose by £1trn to £11.8trn, the largest increase on record. More than half of that uptick was driven by rising land and property prices. But who owns that wealth?  

Back in the 1910s, the answer was the same as it had been for centuries: the elite. During the decade in which Baldwin was writing, the richest 10% possessed more than 90% of the nation’s wealth – and the ratio had been rising rather than falling.

Today, prosperity in Britain is much more broadly based. But there is still an economic divide running right through the heart of our society. That divide is not between the aristocracy and the rest, but between young and old.

Since 1997, the number of people who own their homes outright, mortgage free, has climbed from 5.2m to 8.2m, even as the value of those homes has soared. This represents the greatest increase in wealth in our country’s history. And it is the elderly who have overwhelmingly reaped the benefits. Almost three-quarters of retired households now own their home outright, compared with less than 30% where the main earner is self-employed and less than 20% of those who are employees. Life is also sunny for those approaching pension age: median wealth for households aged 55-66 now averages £553,400, 25 times higher than for those aged 16 to 24, making them the richest cohort in society. Those over-55s are also those most likely to have racked up significant pension savings, which are second only to property as a source of wealth, at 40% and 30% of the national total respectively. 

Of course, it is inevitable that those who have worked longest will have accrued the most savings. But the seesaw has tilted hugely in recent years. Between 2006-8 and 2018-20, those aged 65-74 saw their wealth increase by an average of £13,000 just from growth in asset prices, vs £5,000 for those aged 30-39. During that same period, those over 55 have seen their share of household wealth increase by 11%, while those under that age saw it fall by the same amount. 

And it is getting hard to see how the younger generations will ever catch up. Today the average house costs almost nine times the average salary, the worst affordability ratio for the past 150 years. With the assistance of favourable tax and monetary policy, many of those who already own have used that wealth to become buy-to-let landlords, making it far harder for first-time buyers to get on the housing ladder. The Centre for Policy Studies has shown that the increase in the number of properties owned by landlords in the decade after the financial crisis (2.1m) outstripped the number of new homes we built (1.67m). In other words, we built new homes – but ownership still went backwards.

But it is not just about home ownership. Young people in Britain have an increasingly raw deal. Real wages, having been stagnant for 20 years before the pandemic, are now markedly below where they were in 2021, thanks to the recent inflation spike. The UK has among the highest tuition fees in the OECD, and by most metrics the highest childcare costs. Analysis by the Land, Planning and Development Federation suggests that rising house prices are preventing people having as many children as they want, with owners having more children and renters having fewer. It also found that childbearing rates were higher in areas with more living space.

On top of all of this, government is actively making things worse for young workers and better for older retirees. The Resolution Foundation has shown that on average, someone born in 1956 will pay £940,000 in tax while receiving state benefits amounting to about £1.2m – but someone born in 1996 will enjoy less than half of that figure. And many of the tax and benefit changes introduced in this parliament have reinforced that pattern  – such as retaining the triple lock on the state pension, and other universal benefits, while freezing income tax and National Insurance thresholds. An ageing population means the NHS is remorselessly increasing its share of day-to-day spending: on current trends, the UK state will end up as an elderly care system with a nuclear deterrent.  

But as well as having enormous economic power, pensioners also have enormous political power – indeed, the former in many ways derives from the latter. The propensity of the elderly to turn out in greater numbers at elections means that at the next election, the wealthy over-55 cohort will for the first time make up a majority of actual voters in a majority of constituencies in the UK. Indeed, if you want the simplest possible reason for why the Conservatives won the 2019 election, it is because they lost voters aged 18-24 by 56-21 compared to Labour, but won over-65s by an extraordinary 64-17.

To see what this does to our politics, you only have to look at the fate of recent Conservative attempts at housing reform – or indeed the history of the triple lock.  

This measure was a Lib Dem manifesto commitment, agreed to in the Coalition agreement because – as one of George Osborne’s advisers told me – the Treasury estimated it would cost only £50m a year. It was quite the underestimate. Since the triple lock’s introduction, the cost of the state pension has risen from £70bn to a projected £148bn by 2027/8. In the most recent year alone, it has increased by more than 10%. It is now 20% higher than it would be if it had risen adjusted by inflation alone. At the same time, policies to help younger savers – such as the Help to Buy ISA and then the Lifetime ISA – have seen their thresholds eaten away pitilessly by inflation. 

Of course, there is nothing wrong with looking after pensioners, many of whom are still extremely poor. But the triple lock – like the panoply of other old-age benefits, such as the winter fuel payment, free bus passes and the like – is a hugely blunt instrument, handing out extra cash to binmen and billionaires alike. Yet when Jeremy Hunt announced that it would be retained, despite his needing to plug a £55bn hole in the public finances, there were huge cheers in the Commons chamber. Likewise, it was telling that the Government’s solution to social care involved not setting up an insurance system, under which people could put a fraction of their housing wealth towards buying themselves peace of mind, but increasing National Insurance – symbolically, a tax that is not even paid by the elderly. 

Given the electoral incentives, it is not just the Conservatives who have learned to court the grey vote. During the 2019 election campaign, John McDonnell blew a £58bn hole in Jeremy Corbyn’s ‘fully costed’ manifesto by promising a massive bailout for the WASPIs, those women born in the 1950s who found their state pension age rising to match their male counterparts.15 This followed a Labour pledge at the previous election to keep the triple lock for at least eight more years.16  

But it is the Conservatives for whom the politics, and economics, of this situation are the most challenging. As the Centre for Policy Studies has repeatedly spelt out, low growth and low investment are making our country poorer. But doing the kinds of things that will make us more dynamic and richer in the long run – in particular, building houses, roads, power stations, electricity cables and so on – is hugely unpopular with many of those who like things just as they are, and have (given their relative immunity from financial pressures) very little incentive to change their minds. 

The result is not some kind of generational intifada – not least because young people view old people as their families, not their enemies. The true extent of wealth imbalances is also disguised by the fact that increases in pension pots or house prices do not translate immediately into ready cash, so older people do not necessarily feel themselves becoming wealthier. But poll after poll shows a steady souring of younger generations’ faith in the future. In a recent study by academic Ben Ansell, only 20% of under-40s agreed that a person’s position in society is mostly the result of their own efforts, vs around half of over-70s. Older people were far more likely to use words such as ‘work’, ‘achieve’, ‘reward’, ‘prepare’ and ‘effort’. Fewer than a third of under-30s felt they had a fair chance at buying a house. Polling by the Fraser Institute in Canada showed that young people in the UK were the least sympathetic to capitalism and most sympathetic to socialism of the four Anglophone countries surveyed. 

The writer Sam Freedman has described this situation as ‘the moral failure of Thatcherism’. In his view, the movement our co-founder unleashed created an enormously wealthy generation. But its beneficiaries pulled the drawbridge up after themselves, preferring entitlement to entrepreneurialism. The result is that the Conservatives are ‘snookered’ – because the kind of things that might help the younger generation, such as building houses, will be opposed by the party’s elderly activist base. 

There is certainly an enormous political challenge here for the Conservatives – or indeed for any government. But this is a nettle that needs to be grasped. The current generational imbalance is not just unfair, but unsustainable. We are handing the next generation a low-growth, low-investment, high-debt, high-spending society – but such a society is also one which will be increasingly unable to pay those bills for medical and social care. It is also one in which politicians will be increasingly tempted to target the elderly via wealth taxes, on the basis that theirs is the only source of ready cash left.  

Today the Centre for Policy Studies publishes a collection of essays making the case for a more dynamic economy on the grounds not just of necessity, but of fairness. In order to sustain our current welfare state we will need growth of 2.9% a year – a colossal challenge even if the demographic winds were blowing in our favour, which they very much are not. The temptation will be, as it always has been, to load those costs on to those of working age. 

But if Britain is to prosper – if we are all to have the kind of lives we want – then we need a state that works for the worker as well as the pensioner, that prioritises investing in the future over taking ever more from the young to give ever more to the old. And that resists the temptation, highlighted by Baldwin, to avoid difficult choices by keeping borrowing high, and in the process impose still higher costs on the generations to come. 

The essays, which will be serialised in CapX over the coming weeks, contain a diversity of solutions. We will have essays on innovation and entrepreneurship, housing and home ownership, childcare and carbon emissions. The proposals range from school vouchers to parish votes, visa reforms to a full-spectrum reimagining of health and social care. 

What they have in common is that they view the future not as a lose-lose struggle between generations, but a win-win in which higher growth and a smarter state enable the young to build up the wealth to match the old. It is an agenda for a fairer, more prosperous Britain. And it is one on which the future of conservatism should, and must, be built. 

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Robert Colvile is Director of the Centre for Policy Studies and Editor-in-Chief of CapX.