Young left behind by Sunak’s Budget could become lost generation, economists warn

Further education funding is still lower than in 2010 and younger workers face a heavy tax burden for social care

Anna Isaac
Economics Editor
Thursday 28 October 2021 22:18
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<p>The chancellor had little to offer for sixth formers and younger workers in his Budget amid rising living costs and higher house prices</p>

The chancellor had little to offer for sixth formers and younger workers in his Budget amid rising living costs and higher house prices

Children and young people face becoming a lost generation due to rising education inequality, high taxes and climbing house prices, leading economists have warned.

Analysis shows that, despite spending touted in Rishi Sunak’s Budget on education and childcare, those in further education over the next three years will face funding that is still 10 per cent lower than it was in 2010.

Tax hikes introduced by the chancellor will also disproportionately hit younger people as they target work over wealth. Cohorts entering the jobs market will also face stagnant pay packets, with wages which are 40 per cent lower than predicted before the financial crash of 2008. They face the highest tax burden as a percentage of GDP since 1950 by 2026, equivalent to £3,000 per household even as inflation may reach 5 per cent next year.

Kate Green, the shadow education secretary, told The Independent: “The chancellor has got the wrong priorities and young people are paying the price for it.

“This is a Budget that will leave millions of families on lower incomes worse off, fails to match the scale of the education recovery challenge with the funding the government’s own catch-up commissioner Sir Kevan Collins said was needed, and still leaves sixth forms and colleges with less funding than they had more than a decade ago,” she added.

Weak pay growth comes as younger people also face higher property prices. According to the Office for National Statistics the average UK house price was £25,000 higher in August than a year earlier, at a time of low interest rates and after the government cut stamp duty – a move widely criticised for further inflating the market.

Economists said Mr Sunak had chosen to back measures that would have less of an impact on elder generations rather than those that would hit all ages equally.

“In the autumn 2021 Budget, it’s notable that extra public spending is concentrated on health and social care for older people,” said Lord Willetts, president of the Resolution Foundation’s Intergenerational Centre.

“We do have an obligation to older generations, but we need to do more for younger people as well,” he added.

Funding for sixth form colleges will still be 10 per cent lower in real terms than in 2009-10 by 2024, when accounting for inflation, even as evidence suggests starkly deepening educational gaps between children and young people from wealthier and poorer backgrounds.

Overall, the total allocation for schools’ Covid recovery in the budget amounted to £4.9bn. This was less than a third of the total requested by former government education tsar Sir Kevan, who resigned his post in June over dissatisfaction with the catch-up funding offered by the Treasury.

In response to the Budget, the education expert wrote in The Times, that it was a “surrender” in the effort to recover lost learning.

“The short-term saving offered by a limited recovery programme will be dwarfed by the long-term cost of successive cohorts leaving education with lower skills, an effect that will be most apparent in our poorest communities,” Sir Kevan added. The Budget “represents a false economy and a step towards a less equal society”.

Older students were particularly poorly catered for in the budget, according to the IFS.

“Spending per student in further education and sixth form colleges will remain well below 2010 levels. This is not a set of priorities which looks consistent with a long-term growth strategy,” director Paul Johnson said.

Younger people were also hit harder than elders with higher taxation, despite the new health and social care levy, which aims to raise £12bn per year to address the pressures of an ageing population.

“Both NICS [the health and social care levy] and changes to the personal allowance and higher rate threshold will affect younger people who are working rather than pensioners who are out of work,” said Xiaowei Xu, a senior research economist at the IFS.

“The chancellor could have chosen to raise something like council tax that would have linked to homeowners and therefore linked to pensioners as well,” she added.

While there was a clear need to increase funding for the NHS and social care, the chancellor needed to reconsider how much support he was offering younger people, economists said.

The announcement of the increases to national insurance contributions, which will become a health and social care levy, came several weeks ahead of the Budget. The major tax increase was criticised at the time as being a tax on the working age population, rather than those most likely to be using social care services for age-related needs.

The Budget was also criticised for falling short on childcare provisions. It also offered an increase in benefits only to those universal credit recipients who can work, as opposed to those who may need to care for their children full time. Children in those households will be, in relative terms, worse off even after changes to the national living wage and the universal credit taper.

Shadow chancellor Rachel Reeves described the Budget as “hammering working people, while giving banks a tax cut”.

“The Tories have no plan to tackle the cost-of-living crisis, no plan to shift the unfair taxes they’ve hit working people with and no plan for growth,” she said.

Low interest rates have also fuelled higher asset prices in recent years, making it harder for younger workers to get on the housing ladder.

“We have a continued period of significantly negative real interest rates, probably therefore continued high levels of asset prices and very poor levels of earnings growth, all of which tends to favour those who are older and wealthier relative to those who are younger and less wealthy,” Mr Johnson said.

A Treasury spokesperson, said: “This Budget means billions of pounds to deliver the priorities of the British people by investing in stronger public services, including our education system, levelling up opportunity, driving business growth and helping working families with the cost of living.

“It makes work pay by cutting the universal credit taper rate from 63p to 55p, and raising the national living wage by 6.6 per cent to £9.50 an hour in April 2022, which the Low Pay Commission estimate will benefit 2 million workers. And we ensured our action to fund health and social care announced in September applied fairly across generations by extending the health and social care levy to apply to those working over state pension age.”

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