Relax everyone, the intergenerational wars are over

Ever since David – now Lord – Willetts published what was hailed as his groundbreaking book, The Pinch, the idea that this country was facing, if not already engaged in, a war between the generations has been a set piece of economic and political discussion. His subtitle said it all: “How the baby boomers took their children’s future – and why they should give it back.’’

Over the best part of a decade, Willetts’ premise has grown from a debating topic into a fashionable given. Woe betide anyone who challenged it. We were privileged and self-serving “oldies” – or (for the not-quite so “oldies” among us) a fifth column of apologists operating on behalf of the superannuated “haves” against the youthful “have-nots”.

“We” were depicted as being in perpetual transit between our enormous mortgage-free houses and our latest world cruise, while “they” were stuck in extortionately expensive garrets, unable, despite their best efforts, to rub two ha’pence together, let alone “get on the housing ladder” before later middle-age.

The appeal of Willetts’ argument was partly that, as a respected former universities minister (and now Conservative peer), he seemed eminently qualified to make the argument he did. It was also because he was taking a position that seemed surprising for a Tory, especially a Tory of a certain age, even if it chimed with the One Nation strand of Conservatism.

His thesis also tapped into the pervasive pessimism post-financial crisis that had already been given a generational spin by two young journalists, Ed Howker and Shiv Malik, whose book Jilted Generation came with its own self-explanatory subtitle: “How Britain has bankrupted its youth”.

Coming up to 10 years on, and with Lord Willetts’ London think tank the Resolution Foundation just launching its Intergenerational Centre to focus on this area, Willetts’ premise, and the consensus that has solidified around it, is suddenly looking less persuasive. It turns out that there may not be an intergenerational conflict after all, or if there was, that it may already be over.

The spanner has been thrown into the works by another London think tank, the Institute for Fiscal Studies – though it should probably be emphasised that this is not about any inter-institutional rivalry. Like so many of the most interesting advances, the evidence for a counter-argument was unearthed almost by accident – which in a way, of course, adds to its credibility.

In a pair of reports released earlier this week, in collaboration with the Joseph Rowntree Foundation, the IFS examined recent government figures on living standards. It focused on what appeared to be a startling rise since the mid-1990s in “in-work poverty” – the number of households qualifying as poor, even though at least one person in that household was in paid work. And it asked the obvious question: why?

After all, an increase in the number of households in work – which is what we have seen – should surely lead to a fall in poverty, especially child poverty, not to a rise. The maxim is, as Bill Clinton repeated through his 1992 presidential campaign, and has been echoed by liberal politicians ever since, that “if you worked hard and played by the rules you’d be rewarded”.

But this is not what seemed to have happened in the UK. Part of the conundrum seemed to be explained by the fact that many of those moving into work tended to take lower-paying jobs. But another part of the explanation lay in improved living standards for pensioners. Rises in the state pension, the tail-end of secure company pensions and the greater prevalence of private pension saving meant that pensioners had ceased to be a group for whom poverty was entrenched and now, on average, they enjoyed a more “normal” level of income. That is surely a good thing. But a knock-on statistical effect is that poverty – both absolute and comparative (which is how the official definition works) – is now more evenly spread.

It is obviously not desirable that so many people are in low-paying jobs – the extent to which the UK has become a low-wage, low-productivity economy is not acknowledged as often or as openly as it should be. But the figures on in-work poverty – perversely – reflect an improvement overall, both for the households where someone has moved into work, and for pensioners as a group.

So far, so good. In crunching the latest numbers, however, the IFS turned up something else. What it found was that the increase in pensioner incomes has at best tailed off, and that it is those hard-pressed millennials whose incomes are now rising faster than those of any group, and that they are also buying themselves homes. The combination of low mortgage rates and expensive and inflationary state subsidies, such as Help to Buy, is starting to make “generation rent” a matter less of necessity than choice.

But the new reality, which is actually the old reality that had been obscured by the preoccupation with an economic generation gap, is that the disparity within generations is far bigger and far more entrenched than any gap between the generations ever was.

The houses that the millennials – as a cohort – were supposedly locked out of were always going to come to their richer peers one day (unless care-home fees – an elderly cost that rarely features in official calculations – drained those assets away). The importance of family – not just inheritances, but lifetime – help was also little recognised by the would-be generation warriors, who seemed intent on stoking resentment between parents and their supposedly impoverished adult children.

The IFS found it hard to believe what the data on pensioner income seemed to say, and wants to look into the stalling of pensioner incomes further – as good researchers should. But one factor should be beyond doubt: the financial crisis penalised all generations. The young may have suffered disproportionately from austerity and (until now) static incomes, but the elderly have seen cuts to social care. Essentially, the same ultra-low interest rates that have made mortgage rates lower for homebuyers than they have ever been have deprived older people of funds they had banked on from pension pots and other savings.

What is more, there is a huge gap between very rich and very poor pensioners, which is only likely to widen between those with final-salary pensions – increasingly limited to the public sector – and the rest, whose returns are subject to the vagaries of the stock market. If there is any economic conflict to come, it will be between those who enjoy financial security and those who do not – a manifestation of inequality that affects every age group, from cradle to grave.

I wish Lord Willetts and his new Intergenerational Centre only the best, but as one of many research efforts and voices out there in the public space, not as the unchallenged orthodoxy about conflicting interests that it has increasingly become.

The tendency to see older people’s often modest gain as younger people’s loss has fuelled a misplaced and increasingly toxic resentment between young and old. If the IFS’s gloss on the latest figures helps to reverse that, it will have done us all a favour, wherever we are on the age scale.