Millennials will be hit hardest by tax rises
The generation that’s about to reach the most rewarding of years of their careers face spending their entire working lives earning less and paying more for worse public services, says John Oxley
Few will have been cheered by Sir Keir Starmer’s speech this week. While Harold Macmillan might have told voters that they’d never had it so good, this was more “You’ve never had it so bad”. Predicting it would take a decade to repair the country, he foreshadowed a long period of higher taxes and curtailed spending. For millennials in particular, however, the pain might sting even more.
The press has often mocked those who came of age in the 2000s for profligacy and laziness, but as a generation, they (well, let’s be honest – we) have been buffeted by economic woe. Wages in the UK have been broadly stagnant since the financial crisis. For those who joined the workplace at that time, it means there has been no real growth in pay for their entire working lives. Those in their thirties have perhaps suffered the most, with real terms median pay around 85 per cent of what it was in 2008.
This generation has also borne the brunt of much of the housing crisis. In London and the south east, purchase prices have rocketed to around 12 times earnings. Rents have increased dramatically, too, leaving even many relatively high earners unable to buy and cycling through a series of increasingly expensive lets. It has left them unable to build wealth in the same way as previous generations.
Now, with the prospect of rising taxes, the millennials are likely to be battered again. Entering the most productive and rewarding years of their careers, they are the ones likely to be hardest hit with increased levies. Even if the government sticks to pledges not to raise direct taxes, the effects of fiscal drag and frozen thresholds will pull more and more into paying the highest rates. This will only compound the effects of the stagnation already suffered.
Millennials and the generations that come after them are on the losing side of the bargain. Demographic change and the ageing population, combined with slow growth, means that even maintaining public services at the same level is going to require more and more spending – either through taxation or debt. Projections from the Office for Budget Responsibility suggest that, according to current trajectories, by the time millennials retire, public debt could be nearly 300 per cent of GDP. Avoiding this means either much higher taxes or a crash diet of cuts that would make austerity look like largesse.
Past political decisions have compounded this. Much of the housing crisis is driven by supply restrictions and a political economy that saw increasing prices as a boon rather than a problem. Many of those in retirement now have been able to take out of the system far more than they ever paid in and have had that income secured through measures like the triple lock. Together with broader economic and demographic trends, this has left younger earners in the ultimate squeeze. They potentially face an entire working life of earning less and paying more for the same struggling services.
The only alternative is sustained and meaningful growth. Without it, what has already been a lost decade and a half threatens to become lost generations. The good news for Britain is that there are plenty of things to be fixed – but actually grasping the nettle requires boldness and political will. Those entering the peak of their careers in the next decade have already had much of the pain and will now be squeezed further. The question for them, and for Starmer, is what dividends will be yielded at the end of it. Without a real boom in the future, those who came of age in the 2000s might find their whole working life one of sluggish pay and rising taxes.
John Oxley is a political commentator