19 June 2018 6.00pm
Speaker: Torsten Bell, Director, Resolution Foundation
Speaker: Sean O'Grady, Deputy Managing Editor, The Independent
Dame Kate Barker, a previous Chair of the Society, presided over June’s lively evening event on intergenerational fairness kindly hosted by the Resolution Foundation in their Westminster offices. The speakers were Torsten Bell of The Resolution Foundation and Sean O’Grady of the Independent newspaper.
Torsten’s prepared remarks were based on A New Generational Contract, a detailed Resolution Foundation report to which Torsten was one of the main contributors. Torsten began by noting surveys showing that people have become more pessimistic about the quality of life of young people - particularly in relation to housing, jobs and pensions.
With respect to jobs, over time a growing economy typically means that median real incomes rise across age groups, though that is not true for the most recent cohort of workers. Following the financial crisis real pay has fallen for everyone, but this experience has been particularly bad for younger workers. Part of the explanation is that young people today are 25% less likely to have moved jobs than the generation before them due to risk aversion.
Home ownership has fallen fast since the early 1990s, and this is true across the country not just in London (though the capital does represent an extreme example). Moreover, there has been a fall in access to social housing too - the combination meaning that children are increasingly being brought up in the private rental sector. Each generation is paying more for housing relative to income than previous generations - again London is an extreme example but there have been big increases nationwide.
On pensions, the proportion of people saving into private pensions (and levels of contributions) has gone up thanks in part to auto-enrolment. However, the death of defined benefit and rise in defined contribution pensions has loaded pensioners with the risk of lower returns.
Torsten concludes by noting that the ratio of household wealth to GDP has risen sharply (now 700%) but that those born before 1960 are the biggest recipients of this rise. He argues that the state has made things worse. Benefit cuts are impacting those in their 30s who are at the same time the biggest losers from the financial crisis. He believes housing and pensions problems are partly the result of policy mistakes, that the jobs market challenge will continue to endure well beyond the financial crisis, and that “who” bears risk is as important as the headline financial figures. A reduction in the risk borne by the young can be achieved, he argues, without the need for public money.
Sean’s remarks came from the opposite angle. He began by stating that discussion about intergenerational fairness had become “fashionable”. The problem with the discussion is that such concepts imply a contract between age groups at any given point in time, and that such contracts between the unborn and dead generations can never be binding. He argues that there is some misplaced sense of “fairness”, and that part of the solution will be to address the issue of weak productivity. In other words, it should be more about making the cake bigger and not just about how to divide it.
Sean believes fairness and justice are unworkable across generations. Things happen beyond one’s control which impact wealth - world wars, for example, are “unfair” but cannot/should not be controlled for from an intergenerational fairness perspective. Each generation should not necessarily have the right to be wealthier than the previous one - the pie may or may not be that large to allow that. And if millennials were to break the contract with older people now, what will they in turn expect of their children?
Unlike Torsten, Sean suggests that when it comes to unaffordable house prices it is largely a London phenomenon. Prices in the capital decoupled from elsewhere at the turn of this century and that one could deal with a lot of the millennial property problem by dealing with London itself. Young people in London, driven partly by the media it is argued, still think the only way to get rich is by getting on to the property ladder.
Sean accepts that there are some clear concerns related to intergenerational fairness, including London real estate prices, the need for improved efficiency and fairness in access to higher education, and youth unemployment. But at the same time he argues that there have been some clear positives that have favoured younger generations. Relative to property, everything else has become cheaper. Real motor car prices have fallen, clothing and footwear prices have collapsed as has been the case for real electronic goods prices. At the same time life expectancy has risen, there are more people in higher education, and product quality has improved - all of which question the importance of the intergenerational fairness debate.
George Buckley, SPE Councillor