Is intergenerational inequality holding back Britain?
On 2nd October, the IEA organised a panel entitled “Is Intergenerational Inequality Holding Back Britain?”, as part of the ThinkTent ‘23 fringe event series at the Conservative Party Conference in Manchester. The IEA’s Communications Officer and Linda Whetstone Scholar Reem Ibrahim chaired the discussion. The article below is based on her introductory remarks.
Generation Z are the first generation in 100 years that is set to be poorer than their parents.
My parents’ generation have benefitted from unprecedented economic growth and a political economy that has privileged their interests across a range of policy areas. Britain’s burdensome planning system has put the promise of home ownership out of reach for young people while older people can expect their pensions to rise each year either by 2.5%, average wage growth, or inflation, whichever is highest.
The triple lock on pensions is expected to balloon to £135 billion by 2025, which is more than the day-to-day budgets for the Department for Education, the Home Office, and the Ministry of Defence combined.
This is an astronomical amount of money that is being funded by those in the labour market. It is also absolutely unsustainable.
There are many people that have struggled during the cost of living crisis, but there is no doubt that younger cohorts have been hit particularly hard.
The real scandal is housing. The market is fundamentally broken, but the political incentives simply do not allow policymakers to introduce the structural reforms required. The proportion of 25-34 year olds in the UK who owned their own home was 67% in 1991, this declined to 36% by 2014. For those ages 16-24, home ownership declined from 26% to 9% over the same period.
On the flip-side, according to the ONS, almost 3/4 of people aged over 65+ in England own their own home outright.
The problem is inadequate supply. It is absolutely no coincidence that the number of new homes granted planning permission in England has collapsed to its lowest level since 2008.
The lack of supply does not just hurt first-time buyers, but it also hurts last-time buyers, as argued by Damien Green on the ThinkTent panel. 27% of pensioners are millionaires, but this is usually held in assets, usually bricks and mortar. If we built homes that last-time buyers wanted, they would be much more inclined to downsize, freeing up family homes for new families. It would also mean that pensioners would feel wealthier. Housebuilding benefits everyone.
These intergenerational issues have brought up a wider conversation about the social contract. Many young people, who are contributing to the labour market, feel as though this contract has been broken. We are paying for an ever-expanding welfare state that is primarily taking care of the old. Unfortunately, government policy continues to favour short-term interests.