Britain’s pensioners are emerging from the austerity years with their standard of living unscathed, while their children and grandchildren are struggling to make up the ground they lost in the recession, according to new analysis by a think tank.
As British Chancellor of the Exchequer George Osborne puts the finishing touches to his pre-election budget to be delivered tomorrow, the research from the Resolution Foundation, first published in the Guardian, found that pensioner households saw their incomes jump by almost 10 percent in real terms between 2007 and last year. Working-age households suffered a 4 percent cut.
This fresh analysis will reignite the debate about how the benefits of economic recovery are being shared, and whether future governments can continue to protect spending on pensioners at time when issues of intergenerational equity have come to the forefront of political debate.
British Prime Minister David Cameron recently announced that he would extend his pledge to protect pensioner benefits into the next parliament, while Labour Party leader Ed Miliband has tried to win more support from younger voters by proposing to cut student tuition fees by ￡3,000 (US$4,420) a year.
Resolution Foundation director Gavin Kelly said the sharp divergence in fortunes across the age spectrum resulted from more over-60s being in work, as well as positive policy choices to protect pensions from Osborne’s spending cuts.
“Part of it is a wage effect: Their wages have fallen dramatically less than younger people’s. Recessions are always bad for younger people; this one has been disastrous,” he said.
Employment has surged to record levels since the depths of the downturn — but not everyone has benefited, according to the analysis. Taking into account wages alone, 22-to-29-year-olds saw a 12.5 percent fall between 2009 — the year before the coalition took office — and last year.
There were declines for every age group over the five-year period, but the decline was most muted for the over-60s, who saw a decline of 3.7 percent in wages according to the think tank’s analysis.
In addition, the coalition’s “triple lock,” which promises to increase the state pension each year by inflation, average wages, or 2.5 percent, whichever is the highest, has helped to cushion pensioners’ incomes.
Yet the coalition has continued to devise new policies to tempt pensioners, including new rights for older workers to dip into their retirement pots, and generous savings bonds targeted exclusively at the over-65s.
“It’s hard to escape the conclusion that the interests of the young are being sacrificed for the comfort of wealthier older people. The packhorse generation may start to question the social contract when they see these ‘woldies’ receiving special treatment from pensioner bonds, the triple lock, and undeserved benefits,” Intergenerational Foundation cofounder Angus Hanton said.
Kelly said that young people’s experiences in Britain’s super-flexible, deregulated labor market were deteriorating even before the recession.
“The transitional period from learning into stable work for the young has become more stretched-out over the past 10 to 15 years, and the big fall in demand in the labor market during the crisis has intensified that process,” he said.
Caroline Abrahams, charity director at the services and support charity Age UK, said that the income of older people had changed dramatically.
“Twenty or 30 years ago, to be a pensioner in this country was more often than not to be seriously poor, and it’s very good news it’s not like that today,” she said.
However, the figures showing greater resilience for pensioner incomes were averages, she said.
“The figures gloss over the fact that pensioner poverty unfortunately still exists and affects a substantial number of older people — 1.6 million in total,” she added.
TUC secretary-general Frances O’Grady said: “The post-crash economy seems to be changing shape for the worse. Young people have been hit particularly hard. The government seems to think they should just downgrade their expectations and work for free. But what we really need is a plan for growth, including job guarantees for young people and a faster increase in the minimum wage.”
Miliband has promised to tackle low pay by increasing the minimum wage to ￡8 an hour by 2020, and the prime minister recently called on businesses to give their employees a pay rise.
However, Confederation of British Industry director-general John Cridland used a Resolution Foundation event on Thursday last week to warn politicians against intervening to boost the minimum wage.
“Telling the independent Low Pay Commission what level to set the minimum wage at could potentially damage one of the most successful government policies in years and put jobs at risk,” he said, urging the government to cut National Insurance contributions instead, so that workers can “take home more of the recovery at the end of the month.”
As well as varying by age group, Resolution finds that voters’ experiences of the downturn have also differed widely according to how rich or poor they were before the crisis broke.
All but the poorest households saw their incomes decline during what it calls the “big squeeze,” from the start of the crisis to 2012.
However, the upturn since then has benefited middle earners — the erstwhile “squeezed middle” — while the richest and poorest groups have seen their living standards continue to fall.
Middle earners have seized the bulk of the benefit from the coalition’s tax-cutting measures, such as the increase in the personal tax allowance, while the poorest have borne the brunt of benefits cuts.
Kelly said that with the coalition’s spending plans involving further welfare reductions — including capping benefit rises at 1 percent for the next three years — it was unlikely that this bottom income group would see their fortunes improve much in the near future.
“Given what’s in store for working-age benefits under current plans, it’s very hard to be optimistic about incomes in this group over the next parliament even if we do see steady pay growth,” he said.
A spokesperson for the UK Treasury said that average household incomes have been restored to around their pre-crisis levels and are expected to grow well above inflation this year, and added that “income inequality is lower than when this government came into office.”
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