The British state has become a Ponzi scheme paid for by the young
Flatlining wages, soaring house prices and high childcare costs have broken the social contract: the unspoken understanding that if you worked hard and did the right thing, Britain would reward you, say Simon Clarke and Phoebe Arslanagic-Little
Last week, the OBR set out the sheer, mind-blowing extent of Britain’s fiscal risks. Foremost among them is the coming crunch around our pension commitments. The triple lock is (ironically) costing triple what was envisaged just 13 years ago. But in many ways, the challenge for government isn’t that we have lots of elderly people: it’s that we will have so few young ones to pay for them.
Get a good education. Work hard. Buy a home. Start a family. Play by the rules and you can build yourself a bright future. For much of the last century, this was sound advice to young British people. Advice that could put them on a clear path to security, dignity and the chance to do better than the generation before.
This was a key part of Britain’s postwar social contract, an unspoken understanding that spanned party lines and held that if you worked hard and did the right thing, you would be rewarded. Throughout most of the 20th century, this promise was underwritten by growing material prosperity. Not for nothing did Mrs Thatcher celebrate the triumph of Marks and Spencer over Marx and Engels. Life transformed for the better for most Britons between the 1920s and the 1990s.
Declining birthrates
But today, wages have flatlined. House prices have soared. Childcare costs rival rent, and more young people are living with their parents into their 30s, not because they want to, but because they have no choice. Meanwhile, the cost of the average home deposit has tripled in real terms since 2000. The milestones of adulthood – a home, a family, financial security – sit out of reach for many. A major and alarming symptom of our broken social contract is the decline in the birth rate. Childlessness is increasing and more and more people are postponing parenthood, worried they will never be secure enough to become a mum or dad.
Onward’s new report, The Anti-Social Contract, sets out the scale of this crisis and the structural drivers that have got us here, from bad demographics to economic stagnation. We describe how the costs of our ageing society mean that the burden on young people is growing even as their rewards diminish. By 2070, nearly half of government spending will go to pensions, healthcare and social care. How many of today’s politicians and policymakers believe that the state pension will survive the coming demographic squeeze if nothing changes?
By 2070, nearly half of government spending will go to pensions, healthcare and social care. How many of today’s politicians and policymakers believe that the state pension will survive the coming demographic squeeze if nothing changes?
Immigration has long been treated as the answer to Britain’s economic and demographic sustainability, but the OBR’s analysis has exploded the myth that low-skilled immigration generates a net fiscal contribution – instead, the reverse is true. Meanwhile the extremely large volumes of net migration we have received in recent years have brought to bear huge new pressures on our housing stock, public services and social cohesion alike, complicating existing problems and creating dangerous new social and political fault lines.
The result is that the British state is turning into a kind of Ponzi scheme. And it’s younger generations who are expected to foot the bill. This is unsustainable as well as unfair. In response, the Left will call for redistribution, but you will never get ahead of the problem that way, and efforts to do so will kill economic growth. The only solution is to restore opportunity: that means building more homes, fixing childcare, rebalancing welfare and having a serious conversation about immigration levels. At the heart of renewal is one key word: reciprocity. Everyone gives, everyone gains.
This will not be easy. But the time to act is now. Because no society can survive when its young people no longer believe in the future.
Sir Simon Clarke is director of Onward and Phoebe Arslanagic-Little is head of renewing our social contract at Onward