Will the baby-boomers bankrupt Britain?
It is the election issue that dwarfs all others: the post-war generation is coming up to its retirement and it is the rest of the country that must foot the enormous bill for looking after them. Paul Vallely (born in 1951) wonders how on earth this demographic timebomb can be defused
Monday 05 April 2010
How are we going to afford to look after our increasingly large numbers of old people? Two months ago there were friendly cross-party meetings to find a common approach to tackle one of the greatest long-term problems facing our nation – but now the attempted consensus is in disarray. Instead politicians are squabbling about a Death Tax and labelling the proposed National Care Service a train crash.
Yet whoever gets elected will be faced with the same choice and options – and the same lack of room for manoeuvre. For the inescapable truth is that during the next two decades Britain is going to have a lot more older people who will need a lot more looking after. And there will be far fewer younger ones to pay for it.
This is not about advances in medicine, though those have helped. It is about demographics. After the Second World War a nation which had been starved of sex through enforced separation went mad and produced a massive bulge in the birth-rate between 1947 and 1965. Over the years that followed that bulge moved through the nation's age profile like a pig in a python. Now the Baby Boomers have begun retiring. Over the next two decades the UK's population of old people will reach its highest level ever.
There are those, like the Tory party's Deep Thinker, David Willetts (born 1956) who reckon that tensions between those ageing Baby Boomers and the generation who will have to fund their retirement will be the defining political divide – rather than class, race or religion – in the decades to come. He has recently written a book about it called The Pinch named after the moment in 2030, by which time all the Baby Boomers will have retired – and when some predict that a war between the generations will erupt.
Others of a very different political complexion are coming to agree. "We're not yet seeing the outbreak of inter-generational war," says Richard Reeves (born 1969) of the leftish think-tank Demos, "but we are seeing some skirmishes."
The Case for the Prosecution
The battle lines have already been drawn. The Baby Boomers were born into the first blossoming of JK Galbraith's Affluent Society. They were children in the era in which the then prime minister Harold Macmillan optimistically told his fellow Conservatives that most of the population had "never had it so good".
They were the beneficiaries of the 1944 Education Act which first made secondary education free for all. As youngsters, at university with no fees to pay and a grant to live off, they augmented their free education with free love – after sexual intercourse was invented in 1963. Following the dawn of the era of sex and drugs and rock 'n' roll they bought massive houses for next to nothing, sat back and did nothing, and watched house-price inflation make the value of their nest-eggs soar. Now, they are retiring on index-linked final salary pensions and learning to SKI – an acronym for Spending the Kids' Inheritance.
The Baby Boomers are, the argument goes, the most spoiled generation in British history. Having invented the Youth Generation they neglected ever to grow up. They have squandered the patrimony their prudent and parsimonious parents left them, and seem intent on leaving little behind for their own offspring. A survey for the Joseph Rowntree Foundation a couple of years ago found that a fit and active Saga Generation was bent on spending their savings – and using downsizing and equity release to take cash out of their homes – to splash out on holidays and cars, with two-thirds saying they "did not worry too much about leaving a legacy".
By contrast the younger generation is paying for its university education, building up high levels of debt, finding it tough to get a job, even tougher to get on the property ladder and not even thinking about building up a pension.
Yet these are the people who will pay the bill for the profligacy of parents who, the critics say, have been not just selfish but reckless. Other countries have ageing populations but they have not generated problems as bad as the Baby Boomers.
Britain's Ageing Parents have, over the course of their lives, taken £6 out of the welfare state for every £5 they put in, according to Demos. They have behaved as though their homes were all the piggy bank they needed, neglecting to save enough and then borrowing against their property to finance an extravagant old age.
In mid-life they were – according to an indignant 29-year-old, Andrew Hankinson, who has become an unofficial spokesman for the "lost generation" of young graduates currently languishing in unemployment – "rotten managers who coasted in a cushy economy, relying on the nation's growth and rising house prices to make them rich rather than learning how to make better products". They "sold every small company to a bigger one for a few bits of silver, leaving it to be milked dry by shareholders.".
Then, towards the end of their working life, they opened up the financial markets – thus dooming their children to compete against globalised labour, depressing wages for youngsters and creating a world where even call centres require university education. They crowned their working lives with not just a global financial meltdown but a
climate-change crisis that will sentence their children to decades of picking up the tab for their parents' comfortable lives.
Willetts' thesis is that Baby Boomers have stolen their children's future.
Britain always tended to focus its political debates on questions of whether our national income – and our human and social rights – are fairly distributed between different groups in society. Class was traditionally the great divider, though there are flickers that religion may be replacing it, with Islam in particular as a badge of discrimination and disenfranchisement. But Willets believes that the source of tension in the future will be between the generations as the bills for pensions, ever-greater use of the NHS, increased life expectancy and climate change all come in – and are expected to be paid from the taxes generated by those in work. It will be the final insult from the Baby-Boomers which has pushed the cost of maintaining its privileged lifestyle onto the next generation.
Already there are flickers of the resentment this will cause, according to Wes Streeting (born 1983), president of the National Union of Students. Graduates "have debts in excess of £20,000 after being told they would get a job at the end of their degree and earn more money. Instead they're just heavily indebted," he said. They are, he added, "incredibly angry".
The extent of this bitterness was revealed by Andrew Hankinson (born 1980) who has written and broadcast extensively on new graduate unemployment. He complained recently of being sent by the Jobcentre to a compulsory seminar for "unemployed professionals" which he interpreted as code for anyone who had been to university, and probably owns a suit. The seven other unemployed young people in the seminar were a lawyer, a digital media graduate, a worker with young offenders, a fashion graduate, a property researcher, a former British Gas call centre manager and a criminology graduate.
His account shocked many with its portrait of the kind of people who cannot find work in the post- meltdown world. These graduates are smart, confident and super- competent. One, Rajiv Nawbatt, got a 2:1 in law at Sheffield University, worked in the City for a year, did a postgraduate legal practice course, worked as a paralegal for a year and completed his two-year training contract with a top law firm. But at 27 he had been on the dole for two months. Another is Christine Babicz, who graduated in criminology and got a temporary job at the National Centre for Social Research and then a research internship at the Magistrates' Association. The Jobcentre had told her she had to give that up if she wanted to qualify as "available for work" and get the dole.
They are not exceptions, Hankinson points out. About 40,000 of last year's graduates are signing on six months after receiving their degree scrolls from their vice-chancellor. Most of them, during three years at college, have built up debts of at least £20,000 to earn a qualification which turns out to be of little immediate value in a world where one in every five graduate recruitment schemes has recently been scrapped.
There is a double problem here. The Baby Boomers have raised the expectations of their kids at the same time as creating a world which frustrates those aspirations.
"We learned to spend in childhood and it's become instinctual," admits Hankinson. "And the instinct has been amplified through the generations – Grandma shopped around for the cheapest meat, Mum went to Marks & Spencer, I ask the waiter for medium-rare."
In reply the economic gurus are telling those they regard as Generation Whine to Get Real and find a job delivering pizza if that's all that is available. Young Hankinson is outraged at the suggestion. And – to add injury to insult – when he rang around his local pizza firms he was told there was no work anyway.
Perhaps that old curmudgeon Philip Larkin (born 1922) saw this coming when he wrote:
They fuck you up, your mum and dad.
They may not mean to, but they do.
They fill you with the faults they had
And add some extra, just for you.
That, at any rate, is the case for the prosecution.
The Case for the Defence
The Baby Boomers have mounted a bit of a defence. When Spending the Kids' Inheritance first entered the contemporary vocabulary five years ago it was common to hear comments like: "Don't put sums of money away for the kids, because you've spent an awful lot of money bringing those kids up." Today the apologia has become a little more shame-faced. Boomers, said Emma Soames (born 1949) of the oldies' Saga magazine, "rode a wave of post-war prosperity like a surfer... and we're hanging on to it". Why should we apologise, she suggested, for having the wit to snap up mansions in Notting Hill in the seventies for £50,000 which are now worth nigh on a couple of million.
But the Mayor of London Boris Johnson (born 1964) was much jauntier in his riposte to the notion that he and his peers "are the most selfish, greedy, job-hogging, pension-grabbing bunch of egomaniacs history has ever seen".
Far from raiding the young ones' piggy bank, he said, he and his fellow Baby Boomers had presided over an era in which average global incomes went up by one-third in real terms, life expectancy rose by a third and infant mortality fell by two-thirds. Advances in medicine reduced deaths from cancer, heart disease, stroke and "virtually every other affliction of humanity". We are all richer, taller and healthier. The air and the rivers are cleaner. Foreign holidays are available to almost all. The average IQ of the poor has steadily risen as has the lot of people in poorer parts of the world – with the average Mexican now living longer than the average Briton did in 1955. World population is stabilising, and is due to reach equilibrium by 2050.
"Who gave us Amazon, Starbucks, Walmart, iPod, Prozac, BlackBerry and spreadable butter you can keep in the fridge?" perorated Boris, in a descent from the sublime to the gor-blimey guv. "Who is responsible for the tolerance and openness that has helped to break down sexism, racism and homophobia? It was the Baby Boomers, that's who."
True, the world faces financial and environmental problems, he says, but it always has. He quotes with admiration a book called The Rational Optimist by Matt Ridley (born 1958) who insists all such problems will be solved because there is no limit to human inventiveness. That is why the six billion inhabitants of today's world are better fed, better housed, better entertained and better protected against disease than were their Stone Age ancestors even though fewer than 10 million people then shared between them the entire resources of the planet. "The innovative power of the almost seven billion humans alive today is a resource which dwarfs all others," as Willetts concedes. The Baby Boomers have been a highly-innovative generation.
"Yes, we still face the challenge of pollution," says Boris, "but then someone once predicted that horse-drawn traffic was growing at such a rate that by 1950 London's streets would be under 10ft of manure. Where is that dung today?" Despite all the prophets of eco-doom, he concludes, solar-powered LED bulbs offer the hope of zero-carbon illumination for the 1.6 billion Africans who don't have mains electricity.
Let's leave aside that this is the same Matt Ridley who was chairman of Northern Rock between 2004 and 2007 in which time he lobbied for a decrease in government regulation so stalwarts of casino capitalism like Northern Rock could get on with "creating wealth". The problem with Boris's case for the defence is that it muddles together technological and moral progress. It's perfectly possible to benefit from computers, calculators, digital cameras, mobile phones, rechargeable batteries and satnavs and still refuse to take proper responsibility for our aged parents or our aspiring children. Economic prosperity and social harmony do not necessarily go together.
The Boomerang Babies
The sheer size of the number of Baby Boomers may have not just constituted such a large consumer group that their tastes and requirements changed some cultural norms. They appear to have changed some social values too.
For a start there is the question of who owns what. David Willetts has discovered is that 80 per cent of the nation's £6.7 trillion wealth is owned by Baby Boomers. Of the nation's £1.6 trillion held in shares and savings those between the ages of 50 and 64 own £1 trillion. Of Britain's £1.8 trillion pension pot, a third is owned by them and a further quarter by those over the age of 45. Of the UK's £2.5 trillion-worth of houses they own 40 per cent, and one in five own a second home.
You would expect older people to own more than the young – after all, they have had longer to save. But the gap between the two groups has widened considerably and is growing. Half the population is aged less than 40 but they hold only about 15 per cent of all financial assets, including houses. By contrast the over-50s account for more than 40 per cent of all UK consumer spending, including around £240bn every year on leisure. In an average month, retired people spend £344m on meals out and £535m on travel.
But Willets has a sophisticated gloss on the relationship between the Baby Boomers and their offspring. "Those born between 1945 and 1965 have turned out to be better parents than we are citizens," he has written. By which he means that – paradoxically – the oldies have, institutionally, handed their kids a bad hand, but individually they have become better parents than were the Boomers own Dads and Mums. "The evidence is that the Boomers have devoted more time to our children than the previous generation did to us."
Parents are spending more time looking after their young children. During the last 30 years, the average amount of time a mother spends caring for a child aged under five has risen from 73 minutes a day to 151 minutes – for fathers it is up from 17 minutes to 63 minutes.
At the other end of the spectrum are the growing numbers of "boomerang" children who return to their parents' home after university, or after a failed marriage, putting significant strain on the parental budget. Around a million 18- to 24-year-olds now live at home with their parents. many of them are recent graduates who have struggled to get on the property ladder. The numbers doing this are said to have doubled in recent decades, from 25 per cent to 46 per cent. Some 27 per cent of first-time home-leavers apparently return home at least once and one-in-ten move in and out as many as four times before finally leaving.
In recent weeks Abbey Mortgages has suggested that the Boomers' boomerang children have now been augmented by almost 500,000 adults, aged 35 to 44, moving back in with their parents because of rising unemployment, failing businesses, debt levels and the tougher mortgage-lending criteria.
And when they do leave home their parents continue to help. For all the talk about the disintegrating family more working women rely on their parents to help with childcare than use nurseries. Some 45 per cent of kids still go to granny compared with the 37 per cent who go to nurseries or child-minders. Many of the younger Baby Boomers, who are in any case finding that their promised pensions are slipping through their fingers, are making financial sacrifices to look after their grandkids. And the global financial meltdown has left them poorer and aggrieved. Everyone feels a victim nowadays.
Parents or Citizens?
Yet for all the massive investment of time and money Baby Boomers have made in their children, their desire to be better parents has made them less likely to volunteer in wider social activities – like running the local scout group or youth club – that would help the offspring of others. Parents can do well by their own children, but as a generation are systemically failing the next generation – which is why social mobility has declined if you compare the lives of the Baby Boomers with those of individuals from Generation X born around 1970. "There are things we cannot do as parents," admits Willetts, "but only as citizens." There are, he says, a wider set of reciprocal obligations between the generations. The unspoken contract between the generations is this: parents look after their children, and generally aspire that they should have even better lives than they have done; in return, when those children grow up, they will look after their parents – and hope that their own children, in turn, will do the same for them one day. But this once-binding contract between the young, the adult and the old is breaking down under demographic stress. In the old days there were more people in work than there were old people in need of pensions. Soon, it will be the other way round, with a small number of wealth creators paying for the largest number of pensioners in history.
There are other disruptive forces at work. Britain already has a long history of small nuclear families which has driven the nation to a particular need for strong government and powerful civil institutions. The combined influence of increased individualism and our consumerist culture has focused our attitudes on the need to fulfil our own desires before all else. The increased breakdown of relationships and the growth in divorce has, Willetts notes, made Britons ever more dependent on the state. A benefits system designed to assist those temporarily out of work has morphed into one which supports huge numbers of women who are permanently unable to rely financially on the fathers of their children.
Feminism has had another influence. Perversely, Willetts believes, it has reduced social mobility and increased social inequality. The narrowing of the gender gap seems to have widened the class gap. The percentage of girls born into low-income families who go to university was unchanged between 1958 and 1970. It was just six per cent. By contrast the rate for girls born into richer households rose from 21 per cent to 36 per cent.
And since women graduates tend to marry male graduates social inequality and mobility is bound to rise. "Feminism has trumped egalitarianism," as he puts it, and those inequalities are becoming entrenched through the generations: only 5 per cent of mothers with degrees split up from their partner before their child's third birthday; for mums with no qualifications that figure rockets to 42 per cent.
What about the workers?
David Willetts is perceptive in his analysis and in his gathering together of disparate facts and forces. He reveals how wages of people in their 20s used to be the same as those of people in their 50s, but now they are earning – where they are lucky enough to have a job – around 30 per cent less. He shows how the over-inflated housing market has decoupled the link between hard work, aspiration and reward for the younger generation. But beyond a general imprecation that the Bab y Boomers should share more with the young, Willetts, who is the Conservative Party's front bench spokesman on universities and skills, is somewhat short on specific solutions. Perhaps a looming general election is not the time to be advancing radical thoughts which of their nature are bound to upset some voters. Don't mention the Death Tax.
Ironically, one of the few specific policies his party has advanced – reducing inheritance tax – seems to pull in the opposite direction to his general call for fairer ways of spreading wealth from the one generation to the next. But on pensions, house-prices and financial regulation he has little of substance to offer. On the family all his party holds out is a vague promise to reward marriage through the tax system. How he proposes to redistribute the money, power and opportunity from the Baby-Boom generation to their successors – on a scale that individuals and families alone cannot engineer – is left unvoiced.
What this debate avoids is the realisation that the notion of inter-generational unfairness is essentially a middle-class preoccupation. It may be a fact or for those with big houses and gold-plated pensions but it does not speak much to those we used to call the working-class, most of whom have experienced 30 years of stagnating real wages and yet who now face the longest working-time in Europe. The bulk of Britain's increased national income in those decades has swollen the bank accounts of the wealthiest 10 per cent of the population.
All the talk about a tax on Baby-Boomer graduates to pay for today's universities ignores the fact that in the old days only 4 per cent of Baby Boomers went to university, by contrast to 40 per cent now. No wonder it is more expensive.
But the hard truth is that – whatever the sujet du jour on the metropolitan middle-class dinner-party circuit – most Baby Boomers were never that wealthy or privileged. Many of the population, including the majority of Baby-Boom pensioners, live on less than £22,000 a year. A recent report on retirement by the insurance giant Aviva showed that more than one in five people aged 55 and over have to survive on less than £750 a month. A good number live off their state pension, which, after 12 years of a Labour government, is the lowest in the advanced world. A lot find it hard to keep themselves warm. For many Baby Boomers the greatest inequality is not between the generations. It is within the existing one. David Willetts has yet to get his celebrated two-brains around that.
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