An intergenerational audit for the UK

The second year of the Covid-19 crisis has brought new challenges to different generations

In its first year, the Covid-19 crisis was responsible for loss of life and severe illness, for loss of employment and income and, through the various lockdowns, for major disruptions to peoples’ daily lives.

Much of this continued into 2021. A sharp rise in virus transmission during the winter of 2020-21 resulted in another ‘lockdown,’ with social distancing restrictions forcing in-person services to close, and many colleagues, family and friends to stay apart. However, the UK’s successful rollout of Covid-19 vaccines, which began in the early months of 2021, has helped mediate the impact of the virus on both public health and the economy. As customer-facing businesses were able to reopen in spring, and most social distancing restrictions removed by the summer, the popular narrative about the UK economy has moved from furlough and job loss, to unfilled vacancies and potential labour shortages.

These fast and sweeping changes have had varied effects across different groups of people in the UK, not least generationally. This third Intergenerational Audit for the UK – supported by the Nuffield Foundation – provides a comprehensive assessment of living standards during the second year of the Covid-19 crisis for different generations in Britain, while also highlighting longstanding generational living standards patterns that pre-date the pandemic.

Income and labour market differences by age have reduced as the economy has re-opened, but wealth gaps between different cohorts have risen

In many ways, the generational story of 2021 differs significantly from the first year of the Covid-19 crisis. For example, younger adults are in the age group that is most likely to have experienced a negative employment change (such as furlough, job loss or pay reductions) over the course of the pandemic. But 2021 has seen employment among the young been on a strong recovery, especially since April, whereas older adults (who had been employed before the pandemic) have been more likely to remain on furlough or out of work. Similarly, although younger adults were more likely to experience income falls than older adults in 2020 and early 2021, these age-related differences have narrowed as the economy has reopened.

But the most striking intergenerational shift during the pandemic has been in the distribution of wealth. Total household wealth in the UK rose by about £900 billion between February 2020 and May 2021, driven by increases in the values of assets like housing and non-UK equities. Older families, who were more likely to hold these assets to begin, accrued the lion’s share of these gains: those headed by someone 65 and older held 35 per cent of total wealth before the pandemic and accrued 42 per cent of the increase (£378 billion) since the onset of Covid-19. Younger adults also experienced a relative increase in their wealth: on average, those in their early 30s saw a 13 per cent increase in family wealth between February 2020 and May 2021, compared to a 3 per cent increase among their counterparts in their late 50s and a 7 per cent increase among those aged 80 and older. However, the absolute gap in wealth holdings between generations remain substantial.

This year’s Audit considers living standards across four domains: jobs, skills and pay; housing costs and security; taxes, benefits and household income; and wealth and assets. In each, we summarise the latest developments in the living standards of different age groups and cohorts (by which we typically mean those people born in the same 5-year period), and provide a deep dive Spotlight analysis on specific issues, updating and summarising analysis published earlier this year.

Jobs, skills and pay

The Covid-19 pandemic arrived in the UK during a period of record-high employment, with the 16-64-year-old employment rate reaching 76.6 per cent at the end of 2019. But the structure of the pre-pandemic labour market left some age groups more exposed to the economic effects of Covid-19 than others. Younger cohorts were more likely than their predecessors to work in insecure, lower-paid or  customer-facing roles while young. On the eve of the crisis, 18-29-year-olds were more than twice as likely as their older counterparts to work on a zero-hours contract, to work for employment agency, or to work part-time only because they could not find a full-time job. There was also something of an age-related ‘U-shape’ when it came to the sectors they worked in: during February 2020, 41 per cent of working 18-24-year-olds and 31 per cent and working adults age 65 and older, worked in hospitality, leisure, retail and administrative services compared with between 18 to 22 per cent of their 25-64-year-old counterparts.

It was therefore unsurprising that, when the economic effects of Covid-19 took hold in the UK, young people – and to a lesser extent, their oldest working counterparts –experienced the highest rates of furlough and unemployment. Of those who had been in work before pandemic hit, it was either 18-24-year-olds or those aged 65 and older who were most likely to experience full furlough or worklessness in each month between March 2020 and May 2021. But as the crisis progressed, these age differences began to narrow, and by summer 2021 it was the oldest workers who were most likely to find themselves out of work or on full furlough: during August 2021, the share of employees aged 60-64 (5 per cent) and 65 and older (7 per cent) on furlough was larger than the share of their 18-24-year-old counterparts on furlough (4 per cent). In addition, by May 2021, 15 per cent of respondents to a Resolution Foundation-YouGov survey aged 65 and older who were in work before the pandemic (i.e. in February 2020) were either fully furloughed or not working, as were 13 per cent of their 18-24-year-old counterparts, compared with only between 4-6 per cent of those aged 35-55.

Despite the extensive labour market disruption over the Covid-19 period, the rate of unemployment has remained remarkably low, thanks to the considerable economic support package. This is particularly good news for young workers: unemployment for adults aged 18-24 reached 13.8 per cent during July-September 2020, above its pre-pandemic rate (10.8 per cent at the start of 2020), but considerably lower than the 20 per cent unemployment rate that existed following the financial crisis. Longer-term unemployment has also remained well below the levels reached during the wake of the financial crisis. An additional contributor to these welcome low rates of unemployment has been a sharp rise in full-time study among younger people: in the two years since May-July 2019, the proportion of 16-17-year-olds and 18-24-year-olds that were in full-time study both rose by 4 and 2.5 percentage points, respectively (an additional 200,000 people in full-time study).

But this isn’t to suggest that there won’t be risks over the forthcoming months. Although the 2021 labour market has, so far, been positive for younger workers’ employment prospects, the quality of work as measured by indicators like security and pay looks to be little different from the pre-pandemic labour market, which as previous Intergenerational Audits noted, left much to be desired. Those young people who were unemployed over the past year, and especially those from disadvantaged backgrounds, are at risk of employment and pay scarring over the longer term. There is also a risk that education interruptions, employment shocks and income loss could hamper social mobility for today’s young people. Older workers will be in need of support in the aftermath of the pandemic too, and the Government will need to ensure that those who have been left out of work or on furlough for a long period of time are not be put to one side and left to move into premature retirement.

Taking a longer view, these risks – not just about the number of jobs on offer, but how secure and well paid they are – form part of a wider challenge for the UK’s economic strategy. The Prime Minister has recently outlined his goal of moving the UK towards a high-skill, high-wage economy, and improving labour market rights enforcement and job quality more broadly for workers of all ages will play a role in this. Over the next two years we will explore these challenges in depth, alongside the Centre for Economic Performance at the London School Economics, as part of the Nuffield Foundation-funded Economy 2030 Inquiry.

Spotlight summary: The experience of older workers in the run-up to the pandemic

This Spotlight places the Covid-19 crisis in the context of longer-term trends in employment among older workers, which has been on the rise since the 1990s, driven by increasing employment rates among women.

The fact that the labour market consequences of the pandemic are becoming increasingly slanted to older workers is concerning given the evidence that older workers are both slower to return to work than younger workers, and often return to work at a lower salary, after experiencing a spell out of work. For example, after becoming unemployed in the period 1998 to 2020, 62 per cent of those aged 50 and above had returned to work within 6 months, compared to 74 per cent among those aged 16 to 29, and 72 per cent among those aged 30 to 49. And workers over the age of 50 who have become unemployed over the past 20 years have taken jobs with hourly earnings that were 9.5 per cent lower, on average, than their previous earnings. All this reinforces the importance that the Government provides sufficient help and support to older adults, by ensuring that employment support schemes cater effectively to the specific needs of – and the often high levels of experience held by – older workers.

Housing costs and security

It is well known that there has been a long-term, generational shift in housing for those birth cohorts born after 1960: compared to their predecessors, they are less likely to be homeowners and more likely to be private renters, well into adulthood. For example, at age 34, home ownership rates among those born during 1981-1985 are closer to what they were for their grandparents’ generation (born in the early 1930s) when aged 34 (42 and 37 per cent, respectively) than their parents’ generation born in the 1950s (63 per cent). Conversely, members of the 1981-1985 cohort were much more likely to be in the private rented sector (PRS) at age 34 (30 per cent) than those born during 1951-1955 at the same age (7 per cent). The most recent years have seen a partial reversal of this, with a fall in the share of young people private renting, offset by a small uptick in home ownership among 18-29-year-olds, and a small rise in the share of 18-29-year-old family units that live with their parents. But the prevailing story of younger generations being less likely to own – and more likely to privately rent – still holds up.

Attempts to understand how the pandemic has affected housing tenure patterns has been hampered by changes to large-scale data collection methods necessitated by the need for stop face-to-face contact. However, mortgage data provides little evidence of a significant change in youth home ownership rates during 2020: 43 per cent of mortgages went to 18-35-year-olds, up a percentage point from 2019 but down a percentage point from 2018. After falling markedly during 2020, there was an increase in the number first-time buyer mortgages issued during the first two quarters of 2021, but some of this rise will have been driven by stored-up purchases from 2020.

One very noticeable impact of the pandemic on housing is on house prices, which have defied historical norms during downturns, as well as experts’ predictions, by rising rapidly over the last year. And although they have grown most for detached homes (a roughly 13 per cent increase between July 2019 and July 2021), they have also risen significantly for properties more commonly sought by young families and other first-time buyers like terraced houses (12 per cent) and flats (7 per cent). Rents have grown more slowly than house prices in the two years running to August – and they even fell in London over recent months. Yet they remain significantly higher than in recent years, suggesting that the housing costs are unlikely to have fallen much, if at all, for renters as a whole.

We do not yet have definitive housing cost or incomes data for 2020-21 (which would allow us to understand whether and how housing costs relative to incomes have shifted for different age groups during the pandemic), but survey evidence suggests that the Covid-19 pandemic led to a rise in housing arrears in all age groups, and especially among older adults living in the private and socially rented sectors. For example, 2 per cent of 45-54-year-old respondents to our Resolution Foundation-YouGov survey living in the PRS reported that they had arrears in February 2020 compared to 7 per cent in June 2021. This comes on top of rising pre-pandemic housing cost to income ratios, which in 2019-20 remained higher for younger generations than their predecessors at the same age, and especially for those in the PRS.

Looking forward, it’s too early to tell whether recent policy changes, such as the Mortgage Guarantee Scheme (which allows some lending facilities to offer 95 per cent loan-to-value mortgages) will have an impact on younger people’s home ownership rates. However, as temporary support measures expire this autumn, and the relinking of the Local Housing Allowance LHA to the 30th percentile of private rents is eroded away, policy makers will need to keep a close eye on arrears and housing security for the less well-off across all age groups.

Spotlight summary: An analysis of younger adults living with their parents

When the pandemic broke out, news stories reported anecdotes about the ‘boomerangers’: young, remotely-working professionals who left their city flats to enjoy the relative space and comfort of their parents’ homes. Evidence from the ONS Labour Force Survey indicates a rise in the share of 19-24-year-olds that live with their parents (from 32 per cent on average in 2019 to 37 per cent by the third quarter of 2020). Although evidence from a Resolution Foundation-commissioned survey in June 2021 suggested little change in the share that lived with their parents, it did show that those younger people who have experienced a negative employment shock since the pandemic broke out were more likely to have moved back in with their parents than those who were in work before and during the crisis. Non-graduates, those who worked in hardest-hit sectors and those on lower levels of pay going into the crisis were more likely to move back to their parents’ homes than their better-off counterparts.

This movement continues a long pre-pandemic trend for young people with weak labour market positions to be more likely to live with their parents than their better-off counterparts, and for these economically disadvantaged younger adults to be increasingly likely to do so over time. Living with your parents as a younger adult is not inherently good or bad; like much in life, it will depend on personal circumstances. But where deteriorating economic conditions leave increasing cohorts of young people with few options but to do so, policy makers should begin to pay attention.

Taxes, benefits and household incomes

In the years running up to the pandemic, disposable incomes among younger (18-29-year-old) households had been on a rise: median income after housing costs grew by 7 per cent, to £25,500 (2020 prices) between 2017-18 and 2019-20. Among most of their older counterparts, by contrast, income growth had been much less marked: over the same timeframe, median income after housing costs rose by 3.5 per cent among 30-49-year-olds and 2.9 per cent among those aged 65 and older.

This relative improvement for younger households is not enough, though, to overturn what has been a long-term slowdown in generational incomes progress for working-age households as a whole. By the time they reached their late 20s and early 30s, typical household incomes among 1980s-born millennials were roughly equal to those of the generation X cohort (born during 1971-1975) at the same age (i.e. 10 to 15 years before). By contrast, by the time they reached their early 60s, those born during 1951-1955 had incomes that were roughly 10 per cent higher than those born during the early 1940s at the same age.

The pattern of changes to household income during the Covid-19 crisis will obviously be driven by the underlying labour market changes – which has a strong age profile – but will also be affected by household composition, and the operation of the various support programmes. Our July 2021 nowcast estimated that median non-pensioner disposable income (after housing costs) would grow by 1.5 per cent in 2020-21, but the underlying methodology does not allow a breakdown of this by age.

However, evidence from a series of Resolution Foundation-commissioned surveys during 2020 and 2021 provide some indication to how family incomes (before housing costs) have changed over the course of the pandemic, although only for the working-age population. During the first 10 months of Covid-19, among those who reported their incomes, young people aged 18-24 were slightly more likely to report a fall in their family income (26 per cent) than their older counterparts (for example, 22 per cent of 45-54-year-olds) – in large part because the young were most exposed to employment shocks. As the economy re-opened in the wake of the 2021 winter lockdown, and young people experienced a swifter-than-average return to employment, young people were more likely to report an improvement in their family incomes: 34 per cent of 18-24-year-old respondents to our Resolution Foundation-YouGov survey reported an improvement in their family incomes between February and May 2021, compared with 21 per cent of those aged 45-54.

Official but provisional data suggests that UK households reduced their weekly spending by an average of 19 per cent (£109.10) during the pandemic. Our own surveys find that spending changes over the course of the Covid-19 crisis have varied little by age and more by the presence of children. Early on in the pandemic (during late spring 2020) old respondents of all ages with dependent children living in their homes were more likely than those without children to be report that their family spending had increased, relative to pre-pandemic levels. 27 per cent of 35-44-year-old parents reported that their spending was higher in May 2020 compared to February 2020; just 18 per cent of 35-44-year-olds without children at home reported the same (a 9 percentage point difference). But by June 2021 these differences had mostly disappeared.

The benefit system played a crucial role in protecting living standards for working-age households that lost income or employment since the start of the pandemic, and the temporary £20 a week uplift to Universal Credit (UC) and Working Tax Credits increased the value of that support. That temporary support was withdrawn earlier this month, and this amounts to a 15 per cent reduction in standard allowances for couples over the age 25; a 21 per cent reduction among single adults over 25; and 25 per cent reduction for single adults under age 25. Although the Government very sensibly decided not to uprate the State Pension by the usual triple lock mechanism this year – with average earnings likely rise by over 8 per cent in May-July, the triple lock would have resulted in the largest nominal rise in the state pension for three decades – benefit policy over the last decade still has a strong generational dimension. We find that the combined effect of benefit policy changes since 2010 would, on average, see a 35-year-old’s incomes just under 2 per cent worse off (£706 per year) since 2010, whereas a 70-year-old would, on average, just over 2 per cent better off (£808 per year).

Spotlight summary: The changing incidence of social security benefits by age

As the Covid-19 crisis broke out, there was a significant increase in the number of families receiving income from the benefits system, with 1.3 million more families beginning to receive UC within three months. Between February 2020 and May 2021, the proportion of people claiming means-tested benefits rose among all age groups (for example, there was a 6 percentage point increase among 16-24-year-olds, and a 5 percentage point increase among 30-49 and 60-65-year-olds). More up-to-date data, running to July 2021, shows that, as social distancing restrictions eased, the number of families receiving UC fell, but the number of adults aged 50 or over claiming UC had risen by 34,000 since February.

Over the longer-term, however, our analysis shows how the increase in the number of benefit claimants brought on by the Covid-19 crisis came after several years of a steady decline in the number of people receiving benefits: in 2005, 72 per cent of people received at least one benefit, which had fallen to 62 per cent in 2019. This decline has been driven by increases in the State Pension age, the removal of Child Benefit from high earners, and, especially in the most recent years, a stronger labour market meaning that fewer families were entitled to benefit support. And this in turn has intergenerational implications: children born from 2016 onwards (who we refer to as generation ‘Alpha’) have received less (in real terms) benefit income, on average, than previous generations: £93 a week compared to £118 a week for generation Z (born 2001-2015) when they were children. On the other hand, younger working-age adults – today’s millennials (born 1981-2000) – received similar levels of average support as generation X (born 1966-1980) did at the same age (£63 per week), but considerably more than the baby boomers (born 1946-1965) once did (£37 per week). And today’s pensioners – the same baby boomer generation – receive much more benefit income than earlier cohorts (£287 per week compared to £255 and £171 for the previous two generations) – despite also having more private pension income, on average.

Wealth and Assets

The destabilising effects of the pandemic have, unsurprisingly, had a large impact on saving behaviour across the age range. In a similar pattern to the spending changes, younger adults without dependent children were more likely than older adults (and more likely than their similar-aged counterparts with dependent children) to report an increase in their family’s cash savings between February 2020 and June 2021. For example, 33 per cent of respondents to our Resolution Foundation-YouGov survey without dependent children aged 25-34 reported this, compared with 22 per cent of similarly-aged respondents that have dependent children.

Working-age respondents with children were slightly more likely than their counterparts without them to have reported an increase in family’s debt between February 2020 and June 2021: 12 per cent of 25-34-year-old-headed families without dependent children reported an increase in debt, compared with 20 per cent of those aged 25-34-years-old with children. Even among those with dependent children, the oldest working-age respondents (those aged 55 and older) were half as likely to have reported an increase in family debt (9 per cent) than their counterparts in either the 25-34 or 35-44-year-old age groups, where 20-21 per cent did.

But wealth changes do not just arise from active changes in savings and borrowing but also through the appreciation (or depreciation) of assets that a household owns. And the value of housing and non-UK stocks have appreciated substantially over the past year, with UK house prices now close to 11 per cent higher (in July) than when their pre-pandemic level (in February 2020) and world (non-UK) equities being approximately 20 per cent higher. And these passive changes to wealth stocks have dominated the overall change to household wealth during the pandemic asset price rises accounted for 85 per cent of the total increase in UK wealth. Crucially, the returns to these asset price increases will go to those who already own them, with older families – who are more likely to have pension, housing and equity wealth – therefore being significantly more likely to have benefited.

By linking granular information on pre-pandemic wealth holdings to changes in different asset class prices and pandemic-era changes in families’ savings and debt, we estimate that, between February 2020 and May 2021, typical family wealth in Britain increased by roughly £0 among 20-24-year-olds, by £1,000 among those aged 25-29, by £9,000 for those aged 45-49, but by £17,000 among those aged 65 and older. Among those aged 30 and older, the vast majority (between 91 and 95 per cent) of wealth gains were accrued through asset price rises. By contrast, the majority of the wealth increase seen by younger families derived from active changes in their saving and debt holdings (92 per cent of wealth gains among 20-24-year-olds derived from active savings and debt changes, as did 57 per cent of the gains among 25-29-year-olds). In proportional terms, the changes to wealth stocks over the pandemic exhibit something of an age-related ‘U-shape’, in that those in their 30s and early 40s experienced greater proportional increases in wealth than their counterparts of middle and later-working age, but with those aged 65 and over seeing the fastest proportional rise. However, the much lower levels of wealth held by younger adults mean that absolute gaps in typical family wealth have got larger, not smaller.

The large increases in wealth come on top of stalled cohort-on-cohort wealth progress over recent years – where younger cohorts have no more wealth, on average, than those that came before them. Members of the 1981-1985 cohort had 25 per cent less real total net wealth (the sum of net property wealth, net financial wealth and private pension wealth) at age 34 than those born 10 years before them did at the same age. This stands in clear contrast to members of the 1951-1955 cohort, who, at age 64, had 49 per cent more total net wealth their predecessors born ten years before them, a pattern that has persisted through the pandemic. In other words, the long-term effect of the pandemic is likely to be even larger absolute gaps in wealth between generations.

Spotlight Summary: The costs and benefits of buying a first home over the generations

It would not be a surprise if today’s young people look bitterly at the lower house prices their parents and grandparents paid, while those from older generations look jealously at the low interest rates that first-time buyers now enjoy. Our analysis looks at which side really has the greener grass, by assessing how the full costs over the mortgage term of buying one’s first home has changed between 1974 and 2020.

Typical first-time buyers from older generations did contend with high interest rates especially in the early years of ownership, but policy helped owners deal with these by providing generous tax relief. Typical first-time buyers today face two different challenges. First, they must find significantly more cash to pay the deposit (because of higher real house prices and tighter lending criteria). Second, they must service a much larger mortgage than their parents’ and grandparents’ generation. The implications for prospective first-time buyers are significant. They will need to both save for longer in order to get on the housing ladder (or receive a gift or inheritance) and have a higher income than previous generations to cover the costs of buying a first home. As a result, they may also have to forgo other consumption opportunities.

Conclusion

The Covid-19 pandemic has brought sharp and often devastating consequences to people of all ages. Although younger adults faced employment shocks in the greatest proportions (with employment falling to just 50 per cent among 16-24-year-olds during the winter 2021 lockdown), older adults were far more likely to suffer severe health consequences from the virus (by the end of August, 93,300 75-year-olds and over had died from Covid-19 since the outbreak of the pandemic while 3,187 people under the age of 50 had done so.)

Our four key domains tell a mixed picture for generational living standards over the last year: although the employment picture for young people has greatly improved since the depths of the crisis, some pre-existing intergenerational ‘wedges’ are likely to have been aggravated, with young people increasingly unlikely to be able to catch up with predecessor generations when it comes to home ownership and wealth. And, despite talk of labour shortages and rising pay in previously-shut down sectors like hospitality, there’s little evidence to suggest that pre-existing challenges around the quality and security of work have improved in recent months. Worryingly, the second year of the pandemic has also brought a hint of new living standards challenges to come, including a rise in worklessness among older adults, disrupting decades of employment growth among those aged 55 and up.

In the short term, policy makers will want to ensure that the wind down of pandemic support measures, and the potential for new Covid-19 variants, do not result in high rates of unemployment, income loss, arrears (or illness). Looking further ahead, in the decade ahead, the Government will need to manage the recovery from Covid-19, oversee the decarbonisation of the economy, and smooth the transition to life outside the EU. In doing all this, it should also look to policy that will help restart generational living standards progress: ensuring that future generations find it easier to access secure and well-paying work, live in good quality affordable housing; have steady and adequate incomes; and have the ability to withstand future shocks and enjoy a comfortable retirement through increased assets and wealth.

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Why generational analysis when there is so much else going on

The second year of the Covid-19 crisis has, like the first year, had sharp and often devastating consequences to people of all ages. Some people may ask why we undertake generational analysis when there is so much else happening in the economy. But it is precisely when there is a lot going on that it is particularly important to consider the effects on people of different ages. Generational analysis builds on the idea of distinguishing between different groups of people in society according to when they were born.

Using generations as an analytical framework has a long tradition and its importance derives from two related phenomena. The first is that generations have at least to some degree a shared economic experience, values and cultural norms, particularly those shaped during the formative years of growing up. This results in a degree of collective identity within each generation. For example, at different points in time there will be exogenous shocks which cut across generations. Historically, these have been wars in the early 20^th century; the referendas of Economic Communities in 1975, Alternative Vote in 2011 and the EU in 2016; and recessions in the 70s, 80s and 90s, and the 2008 financial crisis. We are currently living through the most recent exogenous shock: the Covid-19 pandemic. It is already clear that the pandemic will have (had) very different impacts on different generations, and will potentially shape their lives in different ways going forward.

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Although the years preceding Covid-19 were characterised by high employment rates across all age groups, the pre-pandemic structure of the UK labour market left younger generations substantially more exposed to the disruptions that economic lockdowns and social distancing restrictions have had on people’s jobs and pay. Before the onset of Covid-19, younger generations were more likely than their predecessors to work in lower-paid and insecure jobs, and they were more concentrated in sectors that offered in-person services, like hospitality, entertainment and leisure.

Therefore, when Covid-19 hit, it was young people who experienced the highest rates of furlough and unemployment. As the pandemic progressed, however, the relative risk of employment disruption shifted up the age range. The re-opening of much of the UK economy from early summer 2021 brought good news for youth employment, with the employment rate rising faster among 16-24-year-olds than any other age group between the winter lockdown and July 2021. This meant that, by August 2021, the share of older employees on furlough was larger than the share of younger ones that were on the scheme. And those older workers whose employment had been negatively affected were also more likely to have been so for the longer term: workers age 50 and older who were unemployed or on full furlough during May 2021 were more than twice as likely than their younger counterparts to have been in that state for six months or more.

The relative good news story from the past 18 months is that unemployment has risen to a much lesser extent than previously forecast – thanks in part to the Job Retention Scheme. Growth in the share of young people participating in full-time education also helped attenuate the rise in unemployment.

The pandemic has made it hard to interpret many of the indicators usually used to track intergenerational differences in the labour market. It is too early to tell whether policies like the Job Retention Scheme and the Kickstart youth jobs programme have ameliorated the scarring effects felt by young people who have spent much of the past 18 months out of work. But there is so far little evidence to suggest young people are any less exposed to poorly paid and insecure jobs than before the pandemic. Moreover, the effect of the pandemic on education, employment and earnings could impede social mobility for today’s young people and children who are from disadvantaged backgrounds.

As support measures like the furlough scheme are wound down, there is a risk that older workers will find themselves falling into unemployment and out of the labour market altogether. Our Spotlight analysis finds that falling employment among workers aged 50 and older risks undoing decades of growth, particularly among older women, since the 1990s. It also discusses the challenges that older workers face after becoming unemployed. This includes the fact that, compared to their younger counterparts, it takes older workers longer (on average) to return to work, and when they do, they are more likely than younger counterparts to be paid less than in their previous job.

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In the years immediately preceding the Covid-19 pandemic, the proportion of young people that were renting in the private sector had begun to fall, as the share owning homes and living with their parents ticked up. But this did little to unravel the long-term, generational shift in housing, where adults born after 1960 are less likely to own – and more likely to privately rent – than their older counterparts at the same age.

Prior to the pandemic, housing costs relative to income were higher for younger generations than their predecessors at the same age. But there were considerable differences within generations, too: among younger cohorts, mortgagors spent less on housing (even after including the mortgage principal) compared to their counterparts who were privately renting (even after netting out Housing Benefit). But the young and private renters appear to get increasingly less value for money, with overcrowding significantly up during 2018-20 compared with 2010-12.

Temporary changes to large-scale data collection methods have prevented us from examining how the pandemic has affected most housing tenure patterns across different age groups. However, data on mortgage sales provides little evidence to suggest there has been any significant change in youth home ownership rates: 43 per cent of mortgages in 2020 went to 18-35-year-olds, up one percentage point from 2019 but down a percentage point from 2018. There has been an increase in the number of first-time buyer mortgages issued during 2021, but it is still unclear whether this reflects a rise in home ownership rates among the young, as some of the increase will have been driven by delayed sales from the early days of the pandemic and another part could represent sales accelerated to benefit from the stamp duty holiday.

The noticeable impact of the pandemic on housing relates to house prices: although they’ve grown most for detached homes (approximately 13 per cent between July 2019 and July 2021), they also are up for properties that first-time buyers and young families typically seek, like terraced houses and flats (12 and 7 per cent, respectively) (we consider the impact of house price changes on household wealth in the next section). Rents have grown more slowly, but they still remain elevated compared to recent years, even in cities like London (where private rents have fallen in recent months).

Data lags mean we don’t have definitive information on how housing costs relative to income have changed during the Covid-19 period. However, housing arrears are up among young adults in most forms of housing tenure, and are markedly higher for older working-age adults living in the private and social rented sectors: 2 per cent of 45-54-year-old respondents in the private-rented sector reported that they had arrears in February 2020 whereas 7 per cent reported having them in May 2021.

Our Spotlight analysis, at the end of this section, discusses the proportion of young people that live with their parents, the characteristics of young people that do so, and the link between young people experiencing an employment shock during the pandemic and subsequently moving to their parents’ home.

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Leading up the pandemic, typical income among 18-29-year-olds had continued to rise faster than among their older counterparts. But the longer view remained sobering: cohort-on-cohort income progress remained weak for younger generations and, more widely, for those who are now of working age.

As with housing costs, data lags mean we don’t have definitive information on incomes through the Covid-19 period that is consistent with pre-crisis data. But other survey evidence shows that income changes over the course of the pandemic have, unsurprisingly, tracked the health of labour market, with younger people being more likely to report income falls towards the start of the pandemic (when much of the economy had been temporarily shut down) and most likely to report improvements as the economy reopened again in early summer 2021.

Spending changes over the course of the crisis varied less by age and more by the presence of children, with parents being much more likely to report an increase in their spending early on in the pandemic. But, by the summer of 2021, a larger share of parents and non-parents (of all ages) reported their spending was in line with pre-pandemic levels. Among those who have managed to save over the course of the pandemic, plans to spend savings reflect normal lifecycle patterns rather than generational differences or effects of the crisis: pensioners are far less likely than their younger counterparts to plan to buy a home or major purchase like a car, but much more likely to plan to spend savings in other areas, like going on holiday.

The benefit system played a crucial role in supporting working-age households’ incomes over the course of the crisis, and the number of single people with no children receiving income-related benefits grew markedly in the year to the period December 2020 – February 2021: by 1.1 million (a 43 per cent increase). Now that the £20 a week uplift to Universal Credit and Working Tax Credit has been withdrawn, the cumulative effect of benefit policy changes since 2010 has, on average, reduced working-age incomes while boosting pensioner incomes. On average, these changes would see a 35-year-old’s income just under 2 per cent worse off (£706 per year) since 2010, whereas a 70-year-old’s income would be, on average, just over 2 per cent better off (£808 per year).

Our Spotlight analysis discusses how the age orientation of the benefits system has shifted over time, and the impact of the benefit system upon incomes (before housing costs) for different generations, amid the backdrop of the rollout of Universal Credit.

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Pre-pandemic data showed that older adults held the majority of household wealth in Britain, with families from younger generations having, on average, less wealth than their predecessors held at the same age. These intergenerational gaps have been made worse by the economic consequences of the Covid-19 pandemic, which has driven significant changes in wealth, largely to the benefit of older working-age adults and, especially, pensioners.

The pandemic’s impact on active changes in savings and debt varied by age but also by individuals’ experience of the labour market and their personal circumstances. For example, younger people without children were most likely to report that their family’s savings increased during the pandemic, driven by ‘forced savings’ (i.e. being unable to spend on goods and services that were shut down because of social distancing restrictions).

However, changes in household wealth were more affected by changing asset prices than by active changes in savings and debt. Average UK house prices were 12 per cent higher in August than their pre-pandemic level (February 2020) and world (non-UK) equities were approximately 20 per cent higher. These asset price increases benefited older adults, who were more likely to hold them: familied headed by those aged 65 and older held 35 per cent of total household wealth before the pandemic, and accrued 42 per cent (£378 billion) of the total increase in British household wealth (£900 billion) between February 2020 and May 2021.

But when it comes to relative wealth gains accrued over the pandemic, we find something of an age-related ‘U-shape’ among those 30 and older, wherein both pensioners and those in their early 30s and 40s experienced a larger proportional increase in their family wealth than their counterparts in middle and later-working age. For example, among those in their early 30s, median family wealth rose by 13 per cent between February 2020 and May 2021, among those in their late 50s, it rose by 3 per cent, and among those aged 80 and older, it rose by 7 per cent. In absolute terms, though, the largest gains went to those who held the most wealth before the pandemic hit.

Our Spotlight analysis assesses the costs and benefits of buying one’s first home over the generations. The analysis is based on a thought experiment that estimates the fortunes of the typical first-time buyer purchasing in every year between 1974 and 2020. It finds that, although typical first-time buyers from older generations faced high interest rates, especially in the early years of ownership, today’s typical first-time buyer must find significantly more cash upfront for a deposit, and must service a much larger mortgage than buyers in their parents’ or grandparents’ generation.

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Pulling these four domains together, we find that the recovery from the pandemic has offered a reversal of fortunes in the labour market (with employment among younger adults improving against signs of deteriorating employment among older adults). However, this has done little to offset the longer-term trend of younger generations struggling to catch up with their older counterparts across an array of living standards issues, from housing affordability and ownership, to typical incomes and wealth holdings. And longstanding issues around job quality persist: the reopening period does not appear to have brought with it a reduction in the share of young people on insecure contracts or in lower-paid sectors.

The reopening period has offered something of a less buoyant labour market for older workers compared to their younger counterparts, reversing a trend wherein older employment had risen markedly over recent decades. Older adults were less likely than their youngest working counterparts to have experienced furlough or job loss to begin with, but those that did move into worklessness appear less likely than average to have moved back into work – with furlough rates at the end of its operation being higher for adults in their 50s and 60s than those in their teens and 20s. This is worrying, as people in their 60s giving up work early, or moving into unemployment, could have negative consequences for their retirement savings, and thus incomes, in later life.

On housing, there is little suggestion that the second year of the pandemic has brought with it any large-scale changes to generational tenure patterns. The fast-rising house prices which dominated much of 2020 and 2021 are likely to have served as an additional barrier to buying a home, and therefore done little to reverse the fact that home ownership rates have fallen for each cohort born after the 1960s. Although we do not yet have data that would allow us to assess how the pandemic has affected housing cost to income ratios, it does appear that younger adults overall, and older adults in both social and private rented accommodation, were the most likely groups to have reported additional housing arrears – suggesting that housing cost pressures have had both inter- and intra-generational aspects during the second year of Covid-19.

Official data suggests that younger people’s incomes had been on a slight rise in the three years running up to the crisis, which would buck a longer-term trend in which younger cohorts tended to have incomes no higher than their predecessors at the same age. The composition of adults who reported household income falls through the course of the pandemic has, unsurprisingly, tracked the labour market, with younger people being more likely to report income falls towards the start of the pandemic (when much of the economy had been temporarily shut down) and most likely to report improvements as the economy reopened again in early summer.

Pandemic-era changes in wealth, however, do appear to have compounded the pre-pandemic trend for wealth to be increasingly held by older age groups, and cohort-on-cohort wealth progress to have stalled. 63 per cent of the increase in total wealth that occurred over the course of the pandemic went to adults age 55 and over; younger people did experience larger proportional gains in wealth than those of middle-to-late working age, on average, but smaller gains in absolute terms.

Moving forward, policy makers have a long list of short-term concerns to focus on in the recovery: from ensuring the wind down of support measures does not inadvertently lead to upticks in unemployment, arrears or to an increase evictions or debts. These concerns should serve not just as reminder of, but as a reason to tackle, many of the longer-term generational challenges set out in this report. The UK is also on the precipice of a widespread economic change, stemming from the pandemic but also from Brexit and the transition towards a net zero economy (which we are exploring, with the Centre for Economic Performance at the London School of Economics as part of the Nuffield-funded Economy 2030 Inquiry), and the Prime Minister has stated his ambitions to move the UK towards a high-wage, high-skill economy. The UK needs a clear strategy for achieving this, and the strategy itself should include measures to restart generational living standards progress. This means ensuring that future generations find it easier to access secure and well-paying work, enjoy good-quality affordable housing and steady incomes, and are better able to withstand future shocks and live a comfortable retirement through increased assets. But as this pandemic has shown, tackling these challenges is just as critical for living standards and security as it is ambitious.

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