How Britain became a gerontocracy

Last week’s announcement of the return of the triple lock for pensions makes it clear where real political power lies in Britain. Pensioners are promised a 10 per cent increase next year, matching inflation, while basic pay is rising at just 4 per cent.

This is the latest example of a deep-seated trend: our country is tilted to favour the old over the young. Older people, notably the postwar “baby boomers”, born between 1946 and 1964, have the money and the power. The young are facing a future of low pay, high rent, few incentives and much uncertainty — with the government seemingly unprepared to do anything about it.

Analysis by the Resolution Foundation shows that benefit changes since 2010 have cut the incomes of working households with children by an average of £375 per year. Yet pensioners have enjoyed an average gain of £510 per year. That is the effect of the triple lock. Even without increasing total spending on benefits, we could allocate the money we have more equitably between the generations.

We all want older people to have a fair deal and it is right that there should be inflation protection for pensions next year. But the triple lock is far more generous than that. It guarantees that state pensions will increase by inflation or the rise in average earnings or 2.5 per cent, whichever is the highest. The state pension is on a remorseless upward ratchet. Instead it should be linked to earnings in the long term, swapping to prices in periods of high inflation then allowing earnings to catch up when inflation falls.

Defenders of the triple lock point out that many pensioners need the cash. That may have been true in the past, but today the poorest 20th percentile of pensioners are about £1,500 a year better off than the poorest 20th percentile of working-age households.

While pensioners’ incomes surge, younger people’s earnings are stagnating. A 30-year-old today earns no more than a 30-year-old did ten or 15 years ago, partly because young people are more concentrated in lower-paid occupations.

Sometimes older people say the young waste money — too many flat whites and smashed avocado on sourdough, runs the tiresome cliché. But actually the big surge in discretionary spending on eating out or foreign holidays is among the boomers. Young people spend much of their pay cheque on rent — not least to boomers in the buy-to-let market.

Healthcare and pensions are the two biggest costs for the welfare state. As the boomers age, health spending could rise by £50 billion a year over the next decade on top of inflation and pension spending of £25 billion a year. If we borrow it will land the younger generation in debt. Or we could increase taxes on workers. It all boils down to the state taking money from the young to spend on the old — many of whom are better off than them.

Over the past four decades, total personal wealth — including houses and pensions — has ballooned from about three times the national income to about eight times. This changes Britain profoundly. It is now harder to become wealthy through work alone. Inheritance matters much more — though the most common age to inherit is a hardly youthful 61. Society is unequal and blocked. We are a long way from a fair, property-owning democracy. Some say this is the life cycle: old people have always owned more than the young. But the old are doing unusually well; the young, unusually badly.

Up to 75 per cent of older people are homeowners. For younger people, the figure has halved from a peak of 50 per cent in the early 1990s. The surge in house prices is not just due to that new loft conversion. Restrictive planning rules and quantitative easing have boosted the wealth of one generation of homeowners.

It is the same story with company pensions. Legislation over decades made them so generous — and expensive — that they are closed to new members.

The Conservative Party has become the party of property owners. Conservatives preach limited government while collecting votes from those who receive the most public spending. Young people see no prospect of getting a stake in society.

Political and market power favours the biggest cohort of a population: in our case, the boomers. As they grow older, they continue to shape Britain in their own interest. Increasingly, politicians are recognising the truth of this analysis. The difficulty is what to do about it.

Our society is more diverse than ever. But the desire for the younger generation to have a better life unites us. Old people care about the opportunities their children and grandchildren will have. Young people don’t want to see Granny miserable either.

There is a lot we can do. We should help young people become homeowners. Planning restrictions should be eased to build more homes and mortgage borrowing regulations loosened. They are much stricter than when the boomers were starting out.

It’s great that many more young people are saving into an auto-enrolled pension. But they are saving too little: we must boost contributions from them, employers and the exchequer. Graduates have to contribute 9 per cent of their income above a given threshold to pay for their university education: after that debt is paid the payments could continue into a pension instead unless they opt out.

Council tax should be reformed to fall less heavily on the young renting low-value properties compared with affluent people in high-value ones. If tax rises are necessary to fund the NHS and pensions, they should be generationally fair too — with less from young people’s earnings and more from older people’s assets.

We can give young people a kickstart with a capital grant when they reach the age of 30 to save or use as a deposit for a flat or to start a business. And we need to make it easier for younger people — who tend to move around more — to get on the electoral register. Politicians would then have to pay them more attention.

I don’t believe in generational war: intergenerational exchange and solidarity is what holds society together. This weekend at Glastonbury the 80-year-old Sir Paul McCartney is due to perform, and so is Billie Eilish, 20, the youngest ever solo headliner. If only the rest of society would share the stage too.

This article was originally published in The Times.