Mind the generation gap.

By Charles Ansdell, Managing Partner

Coronavirus is primarily a disease of the old or infirm. 91.2% of all deaths in a hospital setting were in over 60s by 14 May. 94.8% had a pre-existing condition. It is irrefutable that the baby boomers and older generation have borne the brunt of the public health crisis.

Rightly, the government has moved to protect the most vulnerable in society.  The economic cost, however, will fall on millennials and generation Z, who will likely be impacted for decades to come.

This, for many, will be a tolerable cost to protect against the deaths of so many, but it has the potential to severely fracture society in future.  These events do not come in isolation, but in the context of increasing inter-generational tensions and public policy and economic decisions that have arguably impacted young people worst.  The question is how, as a country, do we plan to redress the balance.

The forgotten generation

Who’d want to be a millennial, entering the workforce to face the global financial crisis and now coronavirus? Research out today suggests that 18-24 years old will be hardest hit economically by the lockdown measures.

Even prior to the current crisis, the baby boomers were net beneficiaries of the welfare state and younger generations are net contributors. Since 1977, retired household incomes have grown by 190.2%, while non-retirement incomes have grown 118% (Source: ONS).

Social mobility commission analysis showed that in 2017, young people’s wages had fallen 16% compared to 1997.  Millennials (and generation Z) were the first generations in history to enter the workforce on lower incomes than the generation before them.

By the mid-2010s, the UK had the worst youth poverty levels in Western Europe.

Boom times for the boomers

It’s been a different story for pensioners.  Pensioner households are far less likely to be in poverty that working age families. Pensioners have benefited from the government “triple lock” on state pensions since 2010, where pension increases have grown by at least 2.5% in a low interest rate environment.

Housing is another area of generational inequality.  Someone born in the mid-1960s had a 45% chance of owning a house by 25; by the mid-1980s this had fallen to 21%. This lack of housing availability and supply has translated into a net transfer of wealth to baby boomers. Property wealth is currently at its highest in the 65+ cohort (Source: ONS).

As private property and pension wealth are the largest two components of personal wealth, government housing and pensions policies have favoured the boomers.

Coronavirus rips the rift apart

As I write, the estimated fiscal cost of Coronavirus to the government has been £123 billion so far.  GDP in Q2 is projected to drop 35%.  The OBR estimates that the deficit may reach £273 billion – 14% of GDP this year.  Some estimates suggest unemployment could reach 6 million – a record since the great depression.

Already the youngest generation are the worst hit; a third of all workers under 25 work in sectors that have been shut down by the lockdown.  The Institute for Fiscal Studies estimates that under 25s are twice as likely to lose their jobs.

The younger generation will also have to foot the bill for the pandemic response in one way or another.  While we are unlikely to see a return to austerity, tax rises cannot be ruled out especially once the economy has stabilised.

The Government may try to reduce debt through allowing inflation to rise steeply – although that would require a change in mandate for the Bank of England’s Monetary Policy Committee so not something which could be done by stealth.  So while the baby boomers benefited from mortgages being inflated away in the 1970s, non-home owning millennials and generation Z won’t.  If the government continues a low interest rate, low inflation policy, asset bubbles are likely to continue – once again benefiting older people with assets.

For younger generations with limited employment opportunities and a significant national debt to pay down, the best prospect may well be the vast projected inter-generational wealth transfer that will occur as the baby boomer generation gradually reduces in size.  Sadly, this process has been expedited by the current pandemic

Additional societal costs

There is, of course, a potential health cost to younger generations from the economic issues.  Mental health issues can be particularly damaging.  After the global financial crisis, suicide rates increased 4.2% in the overall population but 11.7% in men[1] aged 15-24.

Imperial College researchers found that, following the global financial crisis, a one percent increase in unemployment created 0.37 additional cancer deaths per 100,000 people. A one percent drop in healthcare spending created 0.0053 additional deaths per 100,000 people.

Societal impacts are also significant; crime – particularly burglary – rose after the global financial crisis.  Crime is more likely to be committed by young people and the most socio-economically disadvantaged.

Future challenges require cooperation

The European quality of life survey identifies the UK has having the highest level of inter-generational tensions in Western Europe (at 74.5%).  Far from bringing us together, there is a risk that the pandemic and its impacts – without further action - will further reinforce generational conflict.

However, there is much that can be done.

The Government could make fiscal and policy interventions to redress the generational balance. While the government was voted in by older people (67% of the 70+ age group, as opposed to 21% amongst 18-24 year olds), it should resist the temptation to continually reward this group at the expense of younger generations.

It will also require an open debate between generations to break down mistrust and conflict. A narrative that characterises boomers as selfish and greedy and millennials as feckless and lazy is neither true nor helpful.  Indeed, the role of communications has never been important in healing these inter-generational rifts.

The pandemic has shown quite clearly that factionalism and tribalism can’t solve the major issues that society faces.  Over the next 50 years increased connectiveness, resource dependency, automation and ageing populations will present unique and complex challenges.  They can only be solved when generations work together – not solely for their interests.

Rightly, we have prioritised protecting the oldest and most vulnerable during this pandemic.  When it is over, we must work together to ensure that the futures of all generations are equally prioritised.

[1] Impact of 2008 global economic crisis on suicide: time trend study in 54 countries BMJ 2013; 347 doi: https://doi.org/10.1136/bmj.f5239 (Published 17 September 2013)