Can we really afford to grow old?

For most of this century, the main lines of political division in the Western world were those of class. Parties based themselves on the interests of different classes and the battles over redistribution essentially concerned how much was to be taken from the relatively rich and given to the relatively poor. But as the century draws to a close a new division is coming into view - that of age.

Demography is the most visible cause. At present in the European Union there are 4.5 workers to every pensioner. By 2020 this will have shrunk to 4.0 in Britain, 3.5 in France and 3.0 in Germany. In Britain the numbers aged over 75 are set to double in the next 50 years and the numbers aged over 90 to rise fivefold. The implication is not only that those in work will have to pay higher taxes to finance the pensions and long- term care needs of the old, but also that everyone will have to come to terms with saving more to finance their own old age.

In individual countries, the signs of impending conflict are rapidly becoming visible. The first symptom has been the rise of grey power, which has become part of the political landscape not only in the United States, but also in the Netherlands and Germany, where grey parties have begun to make an impact in elections. In the UK, grey power has become an important factor in consumer markets, though it has yet to be translated into political clout.

Like all new movements, grey power has sparked off a reaction. In New Zealand, it has been pointed out that the generation which was young when the welfare state was designed has steadily steered welfare towards old people as they have aged. In America, the politicisation of age has gone even further. A recent poll found that only 9 per cent of Americans aged 18-34 believe the social security system will have adequate funds to provide their retirement benefits.

The typical small town in mid-America, suggests the social philosopher Daniel Callaghan, now has a shiny hospital and a dilapidated school, a symbol of the way in which future generations are being bled dry to finance the old. Organisations such as Lead or Leave, which claims some 20,000 young-generation members, have organised demonstrations against pensioners' groups and encouraged young people to burn their social security cards, asking why the young should pay for the profligacy of previous generations. Entitlements for the elderly already represent 35 per cent of the total federal budget and current budget plans would increase the share going to the elderly to 43 per cent by 2002.

Fortunately, the demographic and political basis for a breakdown of the social contract is less evident in Britain than elsewhere. Projected income figures from the Henley Centre programme show that the twentysomethings are worse off than preceding generations. Analysis of the British Household Panel Study - published today in Freedom's Children, the final report of the Demos Seven Million Project, which was launched in the summer of 1994 and has drawn on extensive research by the study and by Mori Socioconsult - found nearly four times as many 18- to 34-year-olds in negative equity as any other age group, and many more in debt.

Moreover, young people are increasingly aware of this: only 44 per cent of 16- to 24-year-olds expect their living standards to exceed those of their parents, compared to 69 per cent of 45- to 59-year-olds. Henley concludes that "if the plight of the new generation, relative to that of its parents, becomes more widely understood ... pressure on the older generation to make its share of sacrifices ... will intensify".

The worry for 18- to 34-year-olds is that if benefits such as pensions fail to keep up with earnings, they will get the worst of all worlds - higher taxes to pay for the old, but no guarantees that there will be adequate pensions or long-term care for them. Far from wealth cascading down the generations, as John Major promised, the flow may be going in the reverse direction.

Some have argued that the welfare state can contain these tensions; that growth will continue to fund generous provisions for old age and that people will be willing to pay higher taxes. There is certainly still a strong public commitment to pensions. But it would be dangerous to ignore the straightforward clash not only of interests but also of perception between an older generation, which still expects the welfare state to offer protection from the cradle to the grave, and younger generations who are fast losing confidence that there will be anything left for them. Indeed, according to the Socioconsult analysis, only 43.2 per cent of 18- to 34-year-old women see pensions as primarily national government's responsibility compared to 55 per cent of 35- to 54-year-olds.

Technically, the shifting demographics should be manageable. After all, Britain has coped with a huge demographic shift over the past 30 years without the welfare state falling apart. But the problem for the future is that there is now declining trust in the capacity of the state, and of other big institutions like employers, to manage these shifts fairly.

Some of the signs of distrust are apparent in the labour market. Young people are dramatically over-represented in the most insecure parts of the labour market, with more unemployment and more short-term contracts. Despite having higher expectations of work than previous generations, many feel their ambitions are being frustrated: 42 per cent of 25- to 34-year-olds, for example, report having no promotion opportunities in their jobs. Whereas previous generations might have hoped for a job for life in a large firm or public service, today's employers seem to be offering far less commitment. Not surprisingly, young people are responding in kind with a far more instrumental, less committed approach to work.

It is in politics that the disconnection and loss of trust is most stark. People under 25 are four times less likely to be registered than any other age group, less likely to vote for or join a political party, and less likely to be politically active, even on issues like the environment. Nor is this just an effect of the peculiarities of the British parliamentary system, or of having one party in power for so long. Similar trends have become apparent in almost every Western country.

The political problem is that distrust threatens to undermine intergenerational solidarity. Just 49 per cent of 18- to 34-year-olds say they are willing to sacrifice some individual freedom in the public interest, compared to 61.5 per cent of people aged 35-54 and 64.5 per cent of people aged over 55 - a clear sign that political disconnection is linked to a wider social disconnection.

Clearly, if intergenerational conflict is to be contained, a new deal between the generations will need to be defined. Politicians will need to be able to justify the changing balance of spending between pensioners (both poor and rich), lone parents, school leavers and the unemployed. They will need to acknowledge that today's twentysomethings may not retire until well into their seventies, and that some form of compulsory saving may be necessary if the costs of long-term care and pensions are to be adequately covered.

As in other countries, we will also need new structures to face intergenerational issues head-on. In May, President Jacques Chirac appointed a Minister of Solidarity Between Generations who warned that "the debts we contract today will have to be paid by our children in 10 or 15 years. It is our responsibility not to burden their future with taxes they are not responsible for." Germany has long had a Ministry of Family, Senior Citizens, Women and Youth which tries to take into account conflicting priorities.

In the US, attention is turning to finding techniques for defining more precisely the relative weight of tax and spending for each generation. Laurence Kotlikoff has come up with the concept of "generational accounting" to guide a "switch from an outdated, misleading and fundamentally non- economic measure of fiscal policy [namely the budget deficit] to generational accounting - the direct description of the government's treatment of current and prospective generations over their lifetimes".

The core problem, however, is the inadequacy of a political culture that is no longer fostering commitments between the generations. Without a sense of common purpose and shared interests, intergenerational tensions really could become a time bomb. Clearly the task of re-energising political culture is a massive one, requiring new styles of leadership, new thinking about how political parties are organised and a shift away from the narrow obsessions of Westminster-based politics.

It could be helped by some more immediate measures to bring young people into connection with politics. One would be to put real energy into registering more young people to vote (as the US is doing with innovative schemes such as the Motor Voter laws, which register people automatically when they get a driving licence). Another would be to go a step further and introduce compulsory voting, as in Australia, so as to stop the dramatic decline in voting among young people.

Many would flinch at this as a gross infringement of liberty. But we already have compulsory jury service and compulsory registration, and there is a strong case that it would be better to accept a small infringement on freedom every few years than to see, as in the US, a large part of the population not only effectively disenfranchised but also cut off from society.

Our political culture has yet to come to terms with the new politics of intergenerational equity. But in the years ahead it is set to affect everything from the environment to pensions, from welfare reform to education. Indeed, if slower growth exacerbates the already powerful pressures on welfare budgets, the intergenerational issue could soon be the most important and most difficult challenge that modern politics has to face.

Freedom's Children is available from Demos, 9 Bridewell Place, London EC4V 6AP (0171-353 4479), price pounds 9.95.