Young millennials are being short-changed by the state

Young millennials are on course to pay more and receive less from the UK’s education, health and benefit systems than any other post-war cohort, while baby boomers born in the 1950s are set to gain the most, according to analysis published in a new, updated edition of The Pinch by David Willetts.

The Pinch – first published ahead of the 2010 election – was the first book to warn that younger generations risk losing out. A new edition, published this week and drawing on extensive new evidence from the Resolution Foundation, warns that the problem is getting worse and that, as the UK gears up for an election campaign, our main political parties have failed to deal with the nation’s damaging age divides.

In one of many illustrations of how Britain is racked by age divides, new analysis for the book looks at how much different age cohorts are on course to contribute to and benefit from the UK’s welfare state (education, health and social security provision).

The analysis shows that all cohorts born since 1931 are set to receive a ‘welfare dividend’ over the course of their lives by receiving more support from the welfare state, on average, than they have paid in taxes.

However, the size of this dividend depends on when you born. The biggest beneficiaries are baby boomers born in the mid-1950s (such as Lord Willetts), who are set for a ‘welfare dividend’ of £291,000 over the course of their lives – paying on average £941,000 worth of tax, and receiving £1,231,000 worth of public services from the welfare state in return.

In contrast, the smallest post-war beneficiaries are set to be young millennials born in 1996. They are set to receive a far smaller ‘welfare dividend’ of just £132,000 (£962,000 of tax paid for £1,095,000 worth of public service benefits). The pre-war 1931 cohort have done even worse, because they were too young to benefit from post-war education expansions but paid the higher taxes that made them possible.

The shrinking dividend for millennials, compared to baby boomers, is driven by two factors.

First, the small size of the millennial cohort mean that there will be fewer millennial taxpayers around to fund the public services enjoyed by the larger baby boomer cohorts. Boomers’ consumption of health and pensioner benefits will escalate over the coming decade.

Second, younger generations have been hit by reduced benefit support compared to older generations. This includes the reduction of family benefits that has taken place alongside the protection of pensioner benefits over the past decade.

Lord Willetts says that too often politicians have exacerbated age divides in the labour market and housing market by tilting the state ever further towards older generations.

He goes on to say that age is becoming the dominant divide in British elections. In the 2017 General Election, 30 year olds were twice as likely to back Labour over the Conservatives, while 70 year olds were twice as likely to vote the opposite way. The main parties risk entrenching these divides by appealing to their age-specific core bases.

Finally, Lord Willetts argues that the key to winning big election majorities in 21^st century Britain is to build cross-generational coalitions of support, like the cross-class coalitions that won elections in the 20^th century. This can only be achieved through a policy programme to heal Britain’s age divides – from action to tackle our housing crisis, helping young people build up savings, and securing a sustainable funding system for social care that is fair to all generations.

David Willetts, President at the Resolution Foundation, said:

“When I first wrote The Pinch ten years ago, I wanted to sound a warning siren that huge intergenerational injustices were opening up across Britain, and that young people were losing out while my generation was doing well.

“Ten years on, those divides have got worse. Young people been short-changed by a lack of decent pay growth, a lack of decent, affordable homes, and a state that expects them to pay more in order to receive less.

“Britain’s generational divides are affecting our living standards, and how we vote. Our political parties should use the upcoming election to start healing these divides with a policy programme that appeals to and benefits young and old alike.”