There’s an economic war between the generations, and nowhere is it more apparent than in the U.K.
Where the young are expected to carry the burden of the U.K.’s post-crisis economic adjustment through unemployment, inflation, taxation and out-of-reach housing prices, the old have been protected. Not only is the government reluctant to remove their benefits but it won’t even make them dip into their savings to pay for their old age.
Despite the collapse in deposit rates, various studies have shown that, within the U.K., pensioners have done reasonably well.
Between 1997 and 2011, pensioners across all income distributions have done better than average households in terms of income and welfare. And they are generally doing best from tax and benefit changes introduced between January 2011 and April 2014, according to the Institute for Fiscal Studies.
What’s more, where pensioners have lost from low interest rates, they’ve gained from asset-price rises. The Bank of England’s determination to support inflated housing and equity prices, together with quantitative easing purchases of bonds, have boosted pensioners’ wealth.
Meanwhile, youth unemployment has risen sharply. Youth unemployment in the U.K. at the start of 2008 was 13.5%. Now it’s 21.7%. By contrast, unemployment for those between the ages of 25 and 74 rose from 3.5% to 5.8% by the end of the first quarter.
Inflated house prices mean that the young can’t afford to buy. Not only that, but the Bank of England’s acceptance of high inflation during recent years has eroded savings they might have made towards a deposit.
What’s more, the government is doing whatever it can to help pensioners preserve the wealth they’ve accumulated. Although most Britons see their houses as their pensions, the government is determined to spare them the need to cash them in. The latest wheeze is that the government will cap how much people need to pay towards their own social care at the end of their lives. The political pitch is that pensioners won’t need to sell their houses to pay for their care.
Although this seems a noble political aspiration, it’s yet another burden that falls on youth.
Ultimately, faced with an overwhelming burden placed on them by the old, youth will either rebel or give up. As they seem to have done in Japan, where falling birth rates are accompanied by anecdotal reports of a growing hopelessness of youth. In the U.K., maybe they’ll go the other way, like they did last summer, and take to the streets.
It could be that the Bank of England is trying to transfer resources from the old to the young by way of inflation–inflation tends to benefit borrowers and hurt savers. But inflation also tends to hurt those with smaller incomes. Which means the young.
What seems likely, though, is that political battles will be fought during the coming years on this very fertile field of conflict: the old against the young.