John Kay - My generation should repay its good luck

My generation should repay its good luck

I belong to a lucky generation: too young to have experienced the Depression, or the second world war, or postwar austerity. The first political figure I recognised was Harold Macmillan, who told voters they had never had it so good.

His statement was true, if foolish, and my contemporaries and I benefited. The government paid us to go to university. We took for granted we would choose between attractive job offers. I was quickly appointed to a post from which it was practically impossible to be fired and which offered a pension scheme with generous, index-linked benefits. I bought a flat with a mortgage whose value was wiped out by inflation. By the time I was paying a higher rate of income tax, the level had been cut from 83 per cent to 40 per cent. My life expectancy is several years longer than my father’s, and I have already considerably exceeded the age at which his father died.

If young people today want to attend university, they will have to pay for tuition and borrow to meet living expenses. When they graduate, they face a much more competitive job market. Few careers will offer the job security once characteristic of middle-class employment. Defined benefit schemes have almost disappeared from the private sector, and public sector pensions are to be substantially less generous. Tax rates must rise, partly to pay for the care and medical treatment I will demand as senility advances. The only financial consolation for the next generation is the windfall when we leave them our houses.

Today’s young accept this with little demur. Like every generation of students, they protest: but their demonstrations against tuition fees are barely serious. In 1968 we marched to change the world, and shook the self-confidence of the political elite. But when this failed to change the world, my contemporaries changed their clothes and took jobs in investment banks. Then they presided over, and benefited from, the longest bull market in securities in history.

Young people might reasonably ask their parents or grandparents why a much richer society cannot now provide the benefits it provided for an earlier generation. I am not sure I have a good answer. A university education that was once available to less than 10 per cent of the population cannot be offered on similar terms when half the age cohort is going to university nor, if higher education is so widely available, can new graduates expect the same job opportunities as the older ones. But, in the main, I would have to reply that whatever the sacrifices my parents and grandparents made for us, we do not intend to display similar generosity now that we are in charge.

The reality is not that we can’t pay, but that we won’t pay. Many people are nostalgic for their experience of university, but unwilling to provide funds to universities and their students that would make that experience possible today. Members of my generation won job security for themselves, and awarded themselves index-linked pensions, but we tell our successors they cannot expect such security either at work or in retirement. The companies my generation controls are no longer willing to assume the risks associated with defined benefit schemes, in large part because of the rules we introduced to ensure our own expectations would indeed be fulfilled. We recognise the need for more housing, but insist it is not built anywhere near us, which often means it cannot be built at all.

And so my generation unleashed a wave of unjustifiable anger against George Osborne’s proposal that when we reach the age of 65 we should be expected to pay income tax on the same basis as everyone else. Intergenerational equity is an ugly phrase, but an important concept. And intergenerational equity is not only, or even mainly, about levels of government borrowing and debt. Most parents want to give their children opportunities to live a life better than their own. But when we act together, we aggressively pursue our own interests at the expense of our children and grandchildren: a bizarre paradox of perverse collective action.

 

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