Flat pay, little wealth and a shrinking safety net. Whatever happened to the millennials?

What does the Intergenerational Audit say about UK Millennials


Recently, there’s been good news for millennials from across the pond where the latest data suggests their living standards are catching up with (and on some measures surpassing) previous generations. Unfortunately, the same can’t be said for British millennials. It’s now been five years since the Resolution Foundation’s Intergenerational Commission first laid out the state of intergenerational inequality in Britain. We noted then how the generation born between 1981 and 2000 were caught out by the Global Financial Crisis, which scuppered economic growth just as many were entering the work place. So, what’s happened to them since?

Generational progress on incomes remains modest

The first measure of living standards that most people will turn to is the amount of money they have in their pockets. And unfortunately, younger generations income progress is not to be desired.  At age 30, the typical annual income for those born in the early 1980s was almost £1,400 lower than the incomes of those born 10 years earlier.

But the tide on stagnant incomes might finally be turning, with the latest data suggesting millennials are finally seeing some modest income progress. This progress has also been shared by American millennials, who, after a difficult few years following the financial crisis, have seen their incomes bounce back strongly. The disposable incomes of US millennials in their early 30s are now 21 per cent higher than those of their predecessors at the same age in 2007. In contrast, UK millennials of the same age actually have lower incomes than earlier cohorts had before the financial crisis.

UK millennials lag behind their American counterparts for two key reasons. First, the US economy has consistently outperformed the UK’s since the global financial crisis, resulting in significantly greater income growth. US incomes grew 17 per cent between 2007 and 2021, compared to just 2 per cent in the UK. And second, income growth in the US has been considerably more favourable the young. Millennials have enjoyed higher than average income growth since 2007, whereas the opposite is true in the UK.

Personal tax and benefit policy changes are hindering the incomes of UK millennials

As you may have noticed, the UK’s tax-to-GDP ratio is higher than usual, and forecast to keep rising. These tax increases (including the decision to freeze income-tax thresholds) have been felt fairly uniformly across generations.

However, the cuts to working-age benefits and the changes in how they are uprated, have had a serious impact on the incomes of millennials. Changes to personal tax and benefits since 2010 has left non-pensioners more than £2,200 a year worse off on average. By contrast, pensioners are less than £200 a year worse off.

The skewed impact of these tax and benefit policy changes means that pensioner incomes may now exceed working-age incomes. That’s not just true for typical families either – even high income working-age households have lower incomes than their pension-aged counterparts.

Where’s their wealth?

In the past few years political debates have revolved around the challenges faced by young people in achieving the home ownership milestones achieved by their parents’ generation. For instance, over half (53 per cent) of those born between 1961-1965 were home owners by the age of 30, compared to less than a third (27 per cent) for those born between 1981-1985.

There is evidence that home ownership has started to tick up in recent years. Millennials are still likely to become a generation of home owners (where 50 per cent own their own home). But they will own their first home more than half a decade after the baby boomers reached this milestone – and a greater share of millennials are set for a lifetime of renters.

There could be better news for millennials however. In a world where interest rates stay higher for longer, and house prices fall, home ownership may become a more attainable aspiration, and saving for a comfortable retirement will be easier.

But millennials shouldn’t be counting their chickens just yet. The future path of long-term interest rates is highly uncertain. If we return to the low-rate environment of the pre-pandemic world, house prices could once again outpace income growth, jeopardising younger generations’ aspirations of becoming home owners, and low returns on their pension savings will scupper their hopes of a comfortable retirement.

Something’s gotta give.

In the five years since our first Intergenerational Audit, generational gaps haven’t closed, and intergenerational inequality persists. We can chalk this lack of progress up to a stagnant UK economy limiting economy-wide prospects for pay and income progression. Due to policy decisions and unlucky timing, millennials (and other younger Britons) have received a disproportionately low share of the few rewards that have materialised. This is what happens when we have low growth. Older people with accumulated savings and high incomes who are close to retirement can get by, but young people at the start of their careers and looking to get a foot on the housing ladder, lose out on years of wage growth. Britain needs to end its stagnation. Come join us on 4th December to find out how…