‘When the Cold War ended, we thought we were going to have a clash of civilisations,’ wrote the American author and businessman David Rothkopf. ‘It turns out we’re having a clash of generations.’ As the aftermath of last week’s Budget demonstrated, this clash is well under way in Britain. Behind it lies the idea that the baby-boomers have stolen their grandchildren’s future, hoarding all the property, accumulating debt and then running up NHS bills as they enjoy a retirement funded by the young.
This analysis was first advanced by the right, notably by the universities minister, David Willetts, in his book The Pinch. But the left bolted on its own conclusion: that it is time to tax the oldies, and claw the money back. This is the so-called ‘intergenerational fairness’ agenda, a political hybrid that could be one of the most dangerous ideas of our time. Once, the right would have dismissed the whole concept as un-conservative: don’t moan about what others have; go out and get your own. But the feeling has become so strong, the resentment from the young so deep, that it is impossible to ignore.
Younger people have much cause for grievance. As young Daniel Knowles writes on page 14, his generation can expect to be in their mid-forties before they can afford to buy a new house (unless they can levy their own private intergenerational tax, by wangling cash from their parents). They pay thousands for university courses that until a few years ago were free. Once last week’s changes to child benefit have gone through, a person repaying student loans while trying to support a family of four on £50,000 a year will be facing an effective tax rate of 69 per cent. And when they enter the workforce, young people face competition from immigrants, who now account for one in seven workers.
But if you strip out those foreign-born workers, a very different picture of the British economy emerges. The idea that over-65s are a burden on the young does not stand up to scrutiny. Figures obtained by The Spectator show that there are 800,000 fewer working-age people in employment over the past ten years, but 360,000 more pension-age people hard at work. The only way that the economy expanded during the Labour years was through more debt, foreign-born workers and pensioners returning to (or staying in) work. The changing nature of the British workforce has not just meant Polish plumbers, but also British pensioners, behind the tills at Tesco.
Indeed, many employers prefer to hire pensioners, because they can be relied upon to turn up on time and don’t turn their nose up at work. In many cases, the value of their pension has been shot to pieces — so they need to keep earning. For whatever reason, the proportion of pensioners in Britain’s workforce has doubled. Even including immigrants, pensioners account for half of the rise in employment since the election.
Nor is it true that pensioners have failed to take their share of the pain. Britain’s primary response to the recession was to print £325 billion, a staggering sum with far-reaching implications that even the Chancellor may not quite understand. One clear and immediate consequence, however, has been to give Britain the worst inflation in the western world, and therefore to shrink the real value of pensions. Another has been to lower interest rates, which punishes savers while rewarding the over-leveraged rich. So far, quantitative easing is estimated to have cost the nation’s pension funds £130 billion.
The young and the old are indeed in this together. The young have taken the brunt of the cuts, and the old have seen the value of their nest-eggs decimated by the ‘loose money’ policy adopted by Bank of England. Many young people face unemployment, while many old people have found themselves forced to return to work.
The remedy to grotesquely inflated property prices, which understandably dishearten the young, is not a mansion tax but normal interest rates. When they return, and the Bank of England stops trying to fake an economic recovery with cheap debt, house prices will fall — as they have so often in the past. Today’s pensioners have lived long enough to have seen their friends ruined by earlier crashes. As they know, property wealth can be illusory — whereas debt is all too real.
The steady erosion of the British family unit has, by necessity, undermined the bond between the generations. The idea of grandparents eating Sunday lunch with their families now sounds as dated as Orwell’s old maids bicycling to Holy Communion. But as our society becomes more atomised, our politicians should not encourage the idea that one generation has somehow betrayed another. It is very tempting for the Exchequer to talk of ‘intergenerational fairness’, because it can be used to justify tax raids. But it is based on a dangerous myth: that those now retired somehow rigged the system in their favour. The truth is that the last government ran up a debt which the country will take decades to repay — and, in doing so, it failed us all.
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