The phrase ‘lost generation’ has been wheeled out so often it has lost its sting. But a new report, published this morning by the Resolution Foundation, demands we take it seriously again. The headline is stark: opportunities for British young people are shrinking, not just in relative terms but in absolute purchasing power. This is not a moral panic. It is a mathematical reality.
Consider the metrics. Real wages for under-30s have flatlined since 2008. Housing costs have risen by 40 per cent in the same period. The deposit needed for a first home now consumes seven years of median earnings, up from three in the 1990s. This is not a cyclical dip. It is a structural shift in the distribution of national wealth. The young are paying for the debts of the old.
Let us be clear eyed about this. Inflation is the great unacknowledged villain. Official CPI may be easing, but the effective inflation rate for renters and low earners is running far higher. The Bank of England’s monetary policy has been a blunt instrument. By keeping rates low for too long, it inflated asset prices and penalised savers. Now it tightens, and the young bear the brunt of mortgage pain. There is no escape valve.
Market efficiency is being distorted by government intervention. Help to Buy, however well intentioned, simply capitalised demand into higher prices. The stamp duty holiday was a sugar rush. The result is a generation trapped in rental markets with no path to ownership. Capital flight from productive enterprise into housing has turned our economy into a rentier’s paradise. The yield on a young person’s future is lower than a gilt.
Fiscal responsibility has gone out the window. Government spending as a share of GDP has risen from 39 per cent to 45 per cent since 2010. That debt will be paid by today’s youth, through higher taxes or lower services. The Resolution Foundation report points out that millennials will be the first generation to be poorer than their parents at the same age. That is a systemic failure.
Some will blame Brexit or immigration or technology. These are distractions. The core issue is that we have allowed short-term political cycles to trump long-term investment. The UK’s productivity growth is anaemic at 0.5 per cent per annum. Without productivity, there can be no real wage growth. The young are not lazy. They are fighting an uphill battle against a macroeconomic headwind.
The reaction from Westminster will be predictable: more rhetoric about ‘levelling up’ and ‘skills bootcamps’. What is needed is a root and branch reform of the tax system, a serious reduction in the regulatory burden on housing supply, and a central bank that focuses on price stability over asset price support. Instead, we get tinkering.
The bond market is already pricing in the risk. Long-term gilt yields have risen. That is the market saying the current path is unsustainable. The government borrows at a yield that reflects a risk premium for fiscal incontinence. That premium is a tax on the young.
We must stop treating this as a social problem. It is an economic crisis of resource allocation. The young are the most productive cohort in any economy. By squeezing them, we squeeze our future growth potential. The arithmetic does not lie. The lost generation is not a matter of opinion. It is a balance sheet reality.
