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Disadvantaged: The Young

By Chris Pierson 

In my previous post, I reported how the Coalition government had discharged many of the costs of economic crisis upon the (working) poor.  Today, I consider the ways in which young people in Britain have been systematically disadvantaged by government policy since 2010.

One of the great achievements of the welfare state in Britain is that it has stopped old people being poor, or at least it has ensured that old people are now no more likely to be poor than anyone else.   As recently as 1986, some 40% of pensioners were living in low-income households. By 2012/14, this number had fallen to 13%, compared with 21 per cent for all working-age adults and 27 per cent for children.   The now much-maligned Labour Administrations of 1997-2010 directed enormous additional resources towards older people, but they also directed unprecedented resources towards children living in poverty.  Kitty Stewart (2013, 5) estimates that spending on child-contingent benefits and tax credits more or less doubled across the period of Labour government, while child-related services saw a dramatic increase from around £671 per child in 1997/8 to £2,514 per child in 2009/10.   Spending per child more than doubled in real terms from £1,334 to £2,913.

After 2010, the Coalition Government maintained a commitment to protect (indeed, to enhance) the incomes of pensioners but, despite having signed up to the Child Poverty Act (2010) which included a statutory target of reducing absolute child poverty to 5% by 2020, it effectively abandoned any commitment to address this problem directly.  Instead, it sought to re-focus upon the ‘root causes’ of child poverty (which it found in worklessness and educational under-achievement), rather than inadequate resources going into low-income households with children.   This commitment was reflected in spending on the Pupil Premium (valued at around £2.5 billion p.a.) but reductions in tax credits, in the uplift of Child Benefit rates and of other benefits going into low-income households with children have led to a steep increase in child poverty.  An IFS study conducted in 2013 suggests that under Coalition reforms around 600,000 children will be forced into absolute poverty (defined as living in a household with less than 60% median household income before housing costs in 2011). Of these, around 70% (more than 400,000) will be in low-income working households.  Further work carried out by the IFS found that ‘child material deprivation has been rising since the start of the Great Recession, and it increased by 300,000 children in 2012-13 alone’.

The other group to have been adversely effected by recent changes are young adults, variously presented as those under 25 or those under 30.  The challenge to the ‘intergenerational pact’ which welfare states represent has been with us for some time.  Although attention has been captured by David Willett’s The Pinch (2010) and Howker and Malik’s Jilted Generation (2010), the story of a privileged or ‘selfish’ generation flourishing at the expense of their children or grandchildren goes back in its modern form at least to David Thomson’s Selfish Generations (1991).   Instructively, this challenge calls for us to look beyond the immediate ‘winners and losers’ in the ‘taxes and benefit’ game and to consider the broader political economy of welfare.    As a number of recent reports have shown, it is the cohort under thirty who have fared worst since the Great Recession.   In part, this is because of the already-identified cuts in the welfare state itself, (with the promise of plenty more to come as the Conservative Chancellor anticipates a further £12 bn of as-yet unspecified welfare cuts after 2015).  But in many ways it is more important to look to wider economic changes and the government’s attitude to, for example, the minimum wage, zero-hours contracts, the funding of higher education and the provision of pensions (both public and private).    Underpinning this challenge is differential income and, still more importantly, differential wealth between different age cohorts.  A recent IFS report found that, as average incomes finally returned to their pre-recession levels, while the average income of people aged 60 and over had increased by around 1.8 per cent, for those aged 22-30 incomes were still nearly 8 per cent lower than in 2007/08.   Meanwhile, the generation entering higher education from 2012 onwards will find themselves leaving university with an average debt of around £44,000 (compared to £25,000 under the old regime) and lifetime repayments of around £66,000 (compared to £33,000 under the previous system), a commitment which a majority of people will not meet by the time the debt is forgiven after thirty years.

Of course, people generally earn less and own less wealth in their twenties than in their fifties.  But this is a generation that faces the prospect that it will never ‘catch up’.   Hills (2015) reports that median total wealth for the generation born between 1946-1955 is around £400,000.  For the generation born thirty years later (1976-1985) average median wealth is £60,000.  For the younger generation to ‘catch up’ with the older would require them to save (or otherwise realise) £11,000 p.a. for thirty years.  As Hills (2015) further notes, £11,000 represents nearly half of typical household incomes after tax (for a couple without children).    Much of this wealth differential relates to two major items:  home ownership and accumulated pensions entitlements.

The government’s English Housing Survey for 2013-14 reported that owner-occupation had fallen from a high of 71% in 2003 to 63% in 2013.  Amongst the 25-34 cohort, owner-occupation had collapsed from 59% to 36% and, for the same population, renting in the private sector had doubled (to 48%).   This is Generation Rent.  As owning your own home has been a principal source of wealth for people below the top 1% in the wealth profile, and a major source of growth in that wealth, the inability of this generation to buy (or to buy now), will materially effect wealth across their lifetime; (on the importance of home ownership in the wealth of the 99%, see Piketty, 2014, 260).    Typically, the second largest (in some cases, the largest) component in the wealth of individuals below the top 1% is the imputed value of their (private or occupational) pension entitlements.  The ONS estimates that median value of pension assets (for those who have them) in 2010-12 was £46,900, peaking at £135,900 in the 55-64 age group.    42% of people were reported as having no private pension wealth.  There was a substantial difference in the wealth held by men and women (with 30% fewer women in the 55-64 cohort having private pension wealth and with a median holding of £75,000 less than men of the same age).  As has been widely reported, in recent years many company pension schemes have either been closed or closed to new entrants.  Newcomers have been put into ‘defined contribution’ rather than ‘defined benefits’ systems and the levels of benefits have been downgraded, even in ‘gold-plated’ schemes in the public sector.

All of this needs to be set in the context of a growth in inequality of incomes and wealth which can be retraced to the early 1980s.    The young adult population is one with lower earnings, lower levels of pension entitlement, lower levels of home ownership and higher levels of debt, and the prospect of longer working lives in less secure employment, than those who have gone before them.    Their compensation, according to one commentator in The Spectator is that they will live longer and can get Spotify for free!

Chris Pierson is Professor of Politics at the University of Nottingham, author of  Beyond the Welfare State and lead editor of Political Studies.

Image credit: Wikipedia Commons

Published inBritish PoliticsGeneral Election 2015Politics

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