The Intergenerational State of the Nation: why is fairness to grandchildren such a hot topic?

In the first of our week-long series of articles on intergenerational themes co-published with the independent public policy think tank ResPublica, Angus Hanton (Co-Founder of the Intergenerational Foundation) identifies three key areas of concern, and why new political mechanisms are needed to address thembrothers walking

The UK has started to wake up to a new dimension of social justice. For decades the focus of many campaigners has been on fairness to today’s poor and disadvantaged, but it is now becoming clear that our government is handing out benefits today at the expense of our children and grandchildren. Why has this issue grown so quickly and what are the big areas where intergenerational unfairness is found?

Housing was much easier for earlier cohorts

Housing has become a battleground because of sharply rising housing costs. As house prices in London and the South East have soared, several disturbing facts have emerged:

  1. Most people couldn’t afford to buy the home they live in (even if they do, in fact, actually own it).
  2. Few young people can expect to buy property in London without substantial help from their parents.
  3. We aren’t building as many new homes as are needed so prices are unlikely to fall.
  4. Rising house prices represent a transfer of wealth from young to old.

Unfortunately politicians see buoyant house prices as helpful in winning elections and they are hyper-responsive to the grey voters, the vast majority of whom are home-owners. At the same time, younger people have started to realise that high housing costs are taking away their disposable income, contributing to long commutes to work and taking out of reach the dream of property ownership.

It is not surprising that housing has become the number one political concern for many young people. But there are many solutions which would help, such as encouraging downsizing for those who live in houses that are too big for them, doing much more new building, and reducing the tax subsidies given to Buy-to-Let investors.

 Are young people paying for two pensions?

Traditionally it’s been hard to get younger people interested in pensions but they have become more aware of the issue as auto-enrolment is becoming widespread. Some of those younger people have started to spot that their savings-based pensions (defined contribution, DC) will pay out much less than their parents’ final salary pensions (defined benefit, DB) and are wondering why that could be.

Some are starting to wonder if they are paying twice – for their own pensions and for those of their parents’ generation. To a considerable extent they are: through their taxes on earned income, they are paying for quite generous government pensions, which are much more expensive than originally envisaged due to longer life expectancies and historically high pay levels. Increased life expectancies are obviously very welcome but, just as they are contributing to the under-occupancy of family housing, they are also making the pension promises much more expensive for younger people to finance. Under these circumstances, questions of fairness between generations are inevitable.

Are recurring deficits fair on the young?

The build-up of national debt is at the heart of fairness between today’s citizens and future taxpayers. Despite his determination, George Osborne has demonstrated just how hard it is to reduce the government deficit (the extra borrowing needed each year) while trying to satisfy the demands of the electorate. At the moment it seems extremely tough to move annual government spending below £600bn a year or to raise revenue much above £520bn, so eliminating the deficit is a very hard nut to crack.

While the nut-cracking is being attempted, time is running against the younger generations, whose obligations are steadily increasing and there seems little sign of the burden reducing. The two ways that a nation’s debt burden can reduce are through inflation – which seems almost dead – or through economic growth. Through such growth a fixed obligation would become more affordable, but the recent period of low growth in the UK has made us realise that it is not sustainable for the national debt to grow at 5–10% each year.

How could a new politics take account of intergenerational concerns?

Behind these specific areas of concern (housing, pensions and national debt) lies a deeper problem: that decision-making in Britain is driven by the electoral timetable and policy-making is too short-term in outlook.

As we at the Intergenerational Foundation have been meeting politicians it has become clear that most of them are “presentists” – focused on present injustices and finding it hard to look ahead at the obligations and problems they are leaving to the grandchildren.

The real need then is a double one – not just to deal with unfairnesses towards younger and future people but to build new political mechanisms that entrench the needs of future generations. This is not a pie-in-the-sky wish: the Welsh have recently introduced a Commissioner for Sustainable Futures and there is an active campaign to get a United Nations High Commissioner for Future Generations. Even the UK’s moves towards politically independent bodies such as the Bank of England and the Office of Budgetary Responsibility are steps in the right direction, but much more needs to be done “for the sake of the children”.