Should Baby Boomers Feel the Pinch?
The Shadow Universities and Skills Secretary David Willetts discusses the legacy of the post-war generation with the senior Labour MP Frank Field and Daniel Johnson, the Editor of Standpoint
Daniel Johnson: David, your new book, The Pinch, has been called “the great political book” of this election, but it’s not a very party political book, is it? It’s a wonderfully broad cultural-historical-economic tour d’horizon but it does have a hard thesis at its heart about the baby boom generation. Philip Larkin famously said that sexual intercourse began in 1963 and you’ve demonstrated that it sure did that when the boom peaked. Would you like to briefly summarise what you think is the absolute core of the book?
David Willetts: I believe that obligations between generations are what hold society together, and that a lot of what we can see going wrong with a society is caused by a failure to honour the principle of fairness between generations. A large cohort, a big generation — like the baby boomers — can disrupt fairness between the generations.
This great big generation born between 1945 and 1965 has ended up creating an economy and social system that works for them but is very tough on their kids. This book is an appeal to their better natures, that we have an obligation to pass on a world that is better for our children. If you put together the burden of government debt, through to low social mobility, through to the costs of adjusting to climate change — in lots of ways we can see that the baby boomers have been throwing the party and leaving their kids to clear up the mess.
DJ: Frank, do you find that persuasive, speaking as someone who is not quite a baby boomer but born just before? Looking at it from a bird’s eye view, are the baby boomers as bad as David makes out?
Frank Field: Might I just preface my comments — because I am critical of the book — by saying I’m full of admiration for David? In a review of it, I’ve adapted Mrs Thatcher’s phrase, “every Prime Minister needs a Willie [Whitelaw]” to “every party leader needs a David Willetts”, because he can reach parts of the electorate that the Blairites and the Cameroons can’t. I think it’s the most wonderful exercise and it’s a great tribute to his abilities that he has done this.
With all the other things he has to do, he has found the time to marshal a very impressive argument. Where I disagree with David is that I was slightly surprised that there was this contract going on between the generations. I wasn’t quite sure where it had all come from.
Second, I didn’t think that you could read the book and think that somehow the baby boomers had engineered this set of special circumstances that they are protecting. I think that they neither engineered them nor are they protecting them.
The third criticism that I have, but it’s within that framework of how impressive this work is, is that there aren’t really any policy proposals here. I raise the question of whether if you are a frontline politician, like David, you cannot now raise — at any time in the electoral cycle — serious considerations of policy leading on from your analysis without expecting to be done over by the media and the other side. In that sense I think that’s been a real loss for political life. Therefore I see David describing Mrs Rochester (the baby boomers), with her incendiary tendencies, rushing about, trying to burn up this inter-generational contract — and yet we find no measures for the baby boomers or others to drive Mrs Rochester back into the attic before the contract is finally destroyed.
DW: Well, thank you. Frank and I have been talking about social policy for probably 15 or 20 years now, and I always enjoy conversations with him. Starting at the end and moving back: on the policy question, the policies that I, as a member of the shadow cabinet, support are the official policies of my party, and it would be very hard to write a book that either added to or subtracted from that list. I also found it quite liberating to write an argument and a narrative without a ten-point plan.
One of the most important things that this book could achieve would be to get the baby boomers to think about their obligations to future generations. Part of the problem in our society is that we’ve become incredibly sensitive to differences of income and opportunity within a cohort, and almost completely blind to differences of income and opportunity between different age-groups. So if I just get people to think that way, that itself is progress.
FF: But, do you have a ten-point plan in your head? Or will we have to wait until 6 May?
DW: Actually, you can pull politicians together, and the burden on future generations, the burden of government debt, is the most powerful single argument for getting public expenditure and borrowing under control.
FF: But there is no evidence to support your assertion that the baby boomers are careless about that. Everything from the polls suggests that they actually want tough action quickly, which means that they would be paying the debt, or at least some of it, rather than passing all of it over to succeeding generations.
DW: Some of the caricatures of the book have been that I’m attacking the baby boomers’ motives, but I make no judgment about motive. It is possible that this is just a consequence of being a big generation, and it’s very possible that some of the things that have happened, like the arrival of China and India in the global trading system, are entirely matters of chance. Their arrival in the global trading system — and you, Frank, have spoken about this — has massively affected the earning potential of the younger generation of British people, especially the ones who sadly are not that well educated or qualified. That wasn’t a plot by the baby boomers, it’s just something that happened.
It is clear that, partly because of their size, partly because of the way they changed British society as they came through it in the Sixties, consequences have followed for future generations. But I’m rather with Frank: I do think it’s possible to appeal to their better natures, to do things in the future. Indeed at several points in the book, I offer evidence that people are very susceptible to such an argument. Imagine people running a forestry business, and you give them three reasons for not cutting down trees in a woodland this year. First, because if you don’t cut the trees down the local community can then enjoy the woodland. How much weight do they attach to that? Not that much. Secondly, you say, don’t cut the trees down because if you keep them for the future you can make even more profit for your company in the long run. Some attach weight to that, but not much. However, if you say, don’t cut the trees down because the only reason we’ve got this woodland is because previous generations have refrained from cutting the trees down, and you must not cut the trees down so that future generations can enjoy it — that argument has far more power in affecting behaviour than the other two. That is what studies of popular attitudes reveal. So I’m with Frank in that you can appeal to their better natures.
FF: But can I pin some of the political consequences onto you, because baby boomers could read the book and feel they were in the dock? I’m defending them by saying there’s no evidence that they took any action to land themselves in this privileged position. You, as a politician belonging to a party, helped entrench that. One example is the attack on occupational pensions, which, although they might have endured a more sustained attack under Gordon Brown, began under Margaret Thatcher. When you were at the think tank in Number 10, we started saying that employers could have pension contribution holidays, which, in fact, attack part of inter-generational savings.
Similarly, it was the Conservative government that encouraged people to make a quick buck, by stripping out the mutuality of building societies and so on. These were then going to become great banks of the future — I don’t think a single one of those banks has survived. We would have a different financial landscape if we’d kept building societies.
So I agree with you, there is an inter-generational contract that is implicit. The only time that people have wrought anarchy has been at the behest of politicians on your side of the house. Now, we [Labour] might have done exactly the same thing — when you look at pensions we went on to decimate the actual landscape — but the baby boomers were never presented with the choice, knowing that these costs are not sustainable. We never offered the baby boomers, or other generations, the choice on whether contributions should go up, or whether benefits should be lowered, so that this extraordinary benefit could be shared among a growing number of people and through generations.
So I feel you’ve put them in the dock, and part of the charge sheet is against politicians who didn’t win many votes by doing this, but who have had a huge effect on the inter-generational contract.
DW: Certainly I think what has happened to mutuals has been a loss to our financial landscape, and employers’ contribution holidays weaken the position of our pension funds. So politicians do have to take our share of the blame, and it didn’t all start in 1997, but if you look at the way in which our houses shot up in value, particularly in the last few years…
FF: Again, which governments — plural — encouraged.
DW: Yes, absolutely. But I show in the book that even the Treasury was saying that an increase in the value of your home is tantamount to saving more.
FF: But I’ve never seen a demonstration of baby boomers with banners, saying, “Push up the price of our houses.” It was we who did it. It’s the political class that ought to be in the dock, not the baby boomers.
DW: Do you think that what has happened though — to try to disentangle the motive and the effect — is that some of these decisions have left the younger generation at a disadvantage compared with what they might reasonably have expected?
FF: I do and again I don’t blame the baby boomers for that because we used to debate the rights of older people to continue working. We always had a single example of a pensioner working in B&Q. We had no other example. Now, you have a single example of two baby boomers in New Zealand bungee-jumping — burning, I think that’s the phrase you use — their children’s inheritance.
DW: Spending their children’s inheritance.
FF: Now, my evidence, partly because of the social groups that we mix with, comes from those baby boomers who are concerned about how they transfer some of their assets to their grandchildren to try and mitigate the cost of the relative price of housing. These people know that no government is putting any pressure on them to make transfers. They are nevertheless taking action in the absence of government action.
DW: We’ve established a key bit of common ground, which is that the baby boomers, for whatever reason, have ended up advantaged, compared with the younger generation.
FF: Yes. You’ve got a table in your book that compares wealth and age, which is way beyond what you would expect from people who, like me, towards the end of their working lives, expect to have quite a lot, if we were lucky. But the table is staggering, isn’t it?
DW: Exactly, yes. This is a very important area of agreement. Now, as to why we got into this mess, the relative responsibility of politicians and public policy mistakes made by successive governments, and the baby boomers and their cohorts…
FF: And chance…
DW: …and chance, I suspect, have all played a role. You might argue that politicians themselves were responding to what they thought were the pressures from voters — and of course the baby boomers are a very powerful voting bloc, so when we blame the politicians, maybe the politicians themselves are susceptible to political pressure.
However, my view is that the crucial issue now is that it does need to be redressed. I do agree that the boomers, that parents and grandparents, do their best individually. There is an example from Germany. When Germany unified, the East German pensioners did particularly well because they suddenly got their pensions in this new strong currency, whereas East German workers were not doing so well. One of the first things the East German pensioners did was to pass some of this money on to their kids. So I fully understand that kind of thing. I’m not impugning their motives, but I do think that the framework of public policy — be it what we do on the environment, or what we do on fiscal policy — needs to be set right.
FF: But what I’m trying to argue with you is that you can’t put chance in the dock. I’m saying the baby boomers are innocent. The group that should be in the dock are the politicians, because they are primarily responsible. And the one example recently, which is totally against what I would have thought you wished to see, is that we’ve had an auction over inheritance tax. Your party decided that we should raise the tax threshold to a million pounds, and then we countered with a not so generous figure, but one very different to what we started with, which is the exact opposite of what I thought was implicit policy.
I am pleased by that. I’ve always thought it’s far better for people themselves to redistribute their wealth and I think we should have wealth taxation that encourages people to do just that, rather than for the state to take it and clobber them in that way.
DW: The economic argument for the inheritance tax proposal is that it is individuals who are facing a decision between spending some of the money in their house, eating it so to speak, or leaving it untouched for their heirs or future generations. Easing the burden of inheritance tax changes their incentives between consuming now and saving.
FF: I don’t want people to assume that’s agreed — it’s not. You think it is, but I don’t.
DW: But I hope we can appeal to the better natures of the baby boomers. I don’t think the baby boomers are bad people and, indeed, if you want a political argument that gets people in the head and in the gut, that does cause them to respond, it is this argument about future generations. If you’re trying to win the case as to why you need to be very tough on bringing down the budget deficit, then you cite the burden on future generations. Regardless of what you think the reasons are for climate change, the reason we have to spend more money on infrastructure to protect us from flooding is because something is happening, for whatever reason, and otherwise future generations are going to bear a very heavy cost.
FF: If we genuinely believed that, we wouldn’t be proposing the old death duties. We would be proposing a tax where the tax rate is lower the more you spread your wealth among more people. Society would be stronger if somebody with £1 million decided that there were ten people at the start of life they wanted to support, rather than the government taking the million pounds and deciding that we could do with some more Sure Starts and child centres.
DW: That is a very interesting idea and certainly anything that ensures that you try to pass on something and spread it for future generations is very important.
FF: But what’s missing from the book is that there’s a real concern on the part of the baby boomers who are grandparents and who realise that somehow they were on the escalator at the right point in time. They feel passionately about their grandchildren and their great-grandchildren and they are taking measures within our wretched tax system to benefit them.
DW: That’s why our inheritance tax proposal touches a chord. People say that that money, the spare equity in our house, is what we hope is going to help our children, quite possibly our grandchildren, to get started, and the final chapter of the book is a kind of homage to grandparents and their role. It was influenced partly by Michael Young but I think the notion of grandparents as custodians of these traditions is deep in the Tory tradition. As I worked, for example, on our family Green Paper, one of the things that I became keen on is improving the rights of grandparents. It is shocking that when the parents break up, the grandparents can lose contact with a grandchild, which may deprive that child of two people who are really committed to his or her development. It is even more shocking that if, sadly, both parents die, or are incapable of raising the kids, local authorities don’t first go to the grandparents.
But my judgment in writing the book was to create an account of the kind of country we are, going deep into history: why, for a Conservative, you can accept the idea of a social contract, and welcome it once you think of it as an inter-generational contract, and the importance of each generation thinking about what we’re doing for future generations. I hope in the future we will see absolutely what it means for grandparents’ rights, what kind of laws and tax on inheritance you should have, exactly how you reform pensions, exactly what we do on family policy — all those things follow.
FF: My last comment on it is, how fertile that area is. For every one bungee-jumper in New Zealand, cited by David, there are a thousand trying not to destroy their wealth, not consuming it themselves, and trying to find out, through the maze that we have of a tax system, how they can allow their grandchildren to benefit.
DW: There are interesting statistics about the number of houses being left in wills, and we don’t know why this number is lower than was forecast. There are various possibilities. One is that people are actually passing their wealth earlier on to their kids. The other possibility is that they are indeed being used to boost people’s living standards now.
One thing that struck me while trying to assemble this data is that because we’re so preoccupied in this country with these horizontal comparisons of different classes and incomes and backgrounds, reliable information on how different generations do is lacking. It is hard to work out who owns the money in our pension schemes divided between different generations or to calculate the net value of our housing wealth. The lack of that kind of analysis was, to me, evidence that we’ve been blind to these inter-generational issues.
FF: One way to make sure that the data and the information is available for the next government, whoever it is, is to have inter-generational impact statements on the major measures. So one would be specifically looking at how we, I would argue, build up that contract, and you would say, protect it.
DJ: We’ve touched on the question of, “If there is a problem, who is to blame?” One of the problems I think with your thesis, David, is that for much of the period since the 1960s, the people running the country were not actually the baby boomers. The baby boomers had enormous influence through their votes, through their culture, and through their role in the economy, but actually it was an older generation that was taking most of the decisions, until we get to the 1990s. It’s really only in the last 15-20 years that the baby boomers — us, as it were — have taken over. It is, above all, in the Blair and Brown governments that that has been the case. And it may well be over already. There is a new generation emerging, the Camerons and Milibands, who are about to elbow the baby boomers out of the way. Is it really fair to attribute such an enormous influence to them?
DW: On the economic front, there are indeed three or four different things that have happened. Globalisation was an international event of enormous significance, one of its consequences being for our jobs market. It has helped the people who are more prosperous and more secure, but it has provided real challenges to younger people getting into the jobs market. It had that effect. Was it plotted by a group of baby boomers? Probably not.
The pattern of inflation and low inflation is where I do think politicians respond to a political and electoral environment. The toleration of high levels of inflation in the 1970s and ’80s, and a shift to a world in which people wanted much lower inflation does seem to match boomers’ preferences. When the boomers were running up their mortgages, high inflation was a very useful device for eroding the cost of their mortgage, and now when they’re saving more they care about low inflation. And, although I’m not a complete public choice theorist, I do think there is very strong evidence that the political environment shifted as the composition of the electorate shifted. So this is where some of the culpability of politicians does tie in with the interests of the electorate.
Third, we’ve got this debate opening up about raising retirement ages and people working for longer, and this is happening just at the moment when the baby boomers are facing retirement. The pressures on this to which politicians are responding are much greater than they were ten years ago, and this ties in with the big immediate first surge in the birth rate after the war in 1946 and 1947. So I do think that this relates to the demographic pressure of these people.
When you go through it — and I’m not saying that baby boomers are bad people — it clearly does look as if these debates surface just at the moment when they’re most relevant to this very large group.
DJ: But don’t demographic arguments always slightly box you in, in a sort of fatalistic way, as though there’s no escape? You argue that these generations have already been born and they’re bound to do certain things. Isn’t there a danger of falling into the Malthusian trap that you can predict the future and that it’s bound to be doom and gloom, but actually that it doesn’t always work out like that? I can remember in the 1990s when the baby boomers were taking over and the economic outlook looked grim, but then we had the longest sustained boom in modern history. Now things are looking very bad again, but will it still look as bad in ten or 20 years’ time?
DW: I quote Keynes as saying in 1937: “We know much more securely than we know almost any other social or economic factor relating to the future that, in the place of the steady and rising population we have experienced, we shall be faced in a very short time with a stationary or declining level.” Within ten years the greatest baby boom that Britain had seen had erupted on the scene. So you have to be humble and cautious.
But I do think demographics is the most powerful non-Marxist structural explanation of what’s happening to our country. Because people have already been born you can use what’s already happened to help you look into the future. Now it’s not one hundred per cent reliable, but I do think that you can see that a political debate is increasingly going to be shaped by this group of people. They are 45-65 years old, they’re not all past it, so even if political office is going to pass on to the younger generation, the baby boomers are still going to have enormous voting power. They have a very high propensity to vote, they’re going to be a big slug of the electorate. And as I said, I don’t think they’re bad people — they will be susceptible to things that appeal to their better nature — but they’re going to be such a big group of voters for a long time to come that the kind of policies that they vote for is going to be a really big issue.
DJ: Isn’t it characteristic that, as a baby boomer, you have written a book like this about the contract with the generations? It’s in our time that we started worrying about the environment, pensions, demography. This baby boom generation has worried more about the future than its predecessors.
DW: Yes, I fully understand that, and the only reason really for writing the book is that I thought that baby boomers would be susceptible to these arguments. If I thought they were just determined completely by some narrow view of their economic self-interest then it wouldn’t be worth writing.
And you’re right that we worry about the environment. But I also suspect that the amount of energy — literally physical energy, the world’s resources in the form of energy — that you and I have consumed getting to our 50th birthdays is considerably greater than our parents, and may well be greater than our kids. I suspect we have left so far quite a heavy footprint on the earth.
FF: Could I argue against the emphasis that David puts on these public choice assumptions? While he stacks up the information, it might be irrelevant. Look at inflation, where David says it just so happens that it came at a very convenient time for the boomers, because they were opening their mortgages. Now it’s very convenient for them not to have rising prices. An equally valid interpretation would be that when we were entering that period of hyperinflation the politicians did not know what to do. People were terrified by the inflation, baby boomers as well, and of the social unrest it had brought in other countries, and could have caused here if it had continued at that rate. It may be that we still don’t fully understand how we actually deal with inflation. I think there’s another huge wave coming up, so we’ll be able to test our theories on how we do deal with it. But I don’t think that here was a case where people were thinking that they could calm down the politicians because it was in their interest. I don’t think that works.
A similar case applies to the most recent increase in our birth rate through immigration and its consequences. I cannot believe that a Labour government deliberately opened the doors to let in the millions that have been let in just so that they could teach the other side a lesson on loving their neighbour. I think that those who signed the European Union Act did so on the assumption that, even when we joined, the membership of countries was very similar to our own, and therefore you wouldn’t expect a huge movement of population within Europe. There would be some. You then get to the next stage, which was never planned, that we should actually extend Europe until you can’t see its borders, to countries with living standards that are nothing compared with ours. Of course then there’s mass migration of people. And just as the currency is beginning to break up now in the Euro zone and there are questions of how to patch it up with Greece before we have any more talk about expansion, as we have to think how we take control of the movement of people so that some countries are not overwhelmed within the EU.
Why do these catastrophes happen? It’s partly because politicians cannot see the future. And also, as David knows as well as anybody, because it does actually take quite a long time for a political class first of all to recognise a new problem — hence writing the book — let alone get down to debating what might be done. If you take inflation, we still don’t know how to control it, though we’ve been through one terrible period. And we still don’t know how to control migration into this country properly, although now we’ve got some better ideas than we had. I don’t think it’s part of any plot. It’s about the frailty of the politicians.
DW: Frank is saying that all that this boils down to, essentially, is luck, chance and incompetence — that there are random events, and that politicians are not very good at getting a grip on things. And there are very plausible histories of Britain to be written, and there are some in the High Tory school whose entire account of Britain is in those terms. But I just think that the search for some kind of meaning that helps give a shape to events is very important.
And again, on the migration issue, I completely agree with your analysis, that this large surge of immigrants worked to the advantage of older, affluent middle-class families in London who wanted au-pairs and plumbers, and worked to the disadvantage of younger people entering the labour force. Now, I would argue, if it had been the other way round — imagine that all those middle-class, middle-aged families were incredibly directly hit by these immigration flows, but a smaller group of younger people gained, then I feel that the political response might have been more rapid and more vigorous.
FF: On that I would agree, but again it’s the “what if?”, isn’t it? You showed very well in the book that one consequence of the boom has seen the Edwardian service class recreated, but English is not their first language. And a particular group in society has benefited enormously, particularly because they don’t have these servants living in with them. It has undermined the position of poorer people’s wages, and those of women.
Twenty years ago, I wrote a piece saying that I was confident that I would, in my lifetime, see the position of women in the labour market transformed. I believed that as we aged the demand for caring would increase, and as women dominated this market, the relative costs of caring would rise as the demand went up, and we would see their wages increase. But what we’ve tragically seen is those wages kept down, and many of us ending our time in granny farms — which is what these terrible homes are — looked after by people who may care for us enormously, but who don’t even speak our language. So one’s losing one’s marbles, and the person talking to you can’t even speak English.
Another area where, in a sense, I don’t think your rational politics theory quite works, David, is that although as a group the baby boomers have been so well placed, within the group there are those who have not had the benefits showered on them. And they have more in common with the poor of other generations than they do with their own baby boom generation.
I asked the Commons Library at the last election to calculate the number of pensioners who voted, and, if we assumed that the parliament would last for five years — and it has — to add into that group those who would become pensioners in this five-year term. The majority of “pensioners”, under that definition, determined the last election. But they didn’t vote on grey issues. They still voted, to some extent, on old class lines, because the pull of their unprivileged position brought them more in line and in sympathy with poorer people in other generations than it did with this dominating cohort that has moved through our population.
DW: Yes, but there have been dozens, probably hundreds, of accounts of post-war Britain and British politics written from the prospective of social class. And of course you can’t ignore it, it is a factor. But I’m not aware of a single book on post-war Britain that approaches it from this generational perspective. And whilst, of course, class matters, and there are intra-generational injustices, I just think that this other framework, I’m finding already, strikes a chord with people. People do think it helps to make sense of things, and it does generate a policy agenda that Frank, quite rightly, wants to go further on. And I’ve just been so frustrated that so much of the analysis is horizontal, and so little of it has been vertical.
FF: I now for the first time see the advantages of publishing a book that doesn’t have the policy conclusions in it. Had David felt able to put in what he felt the policy should be, he might have found it much more difficult to get the argument running. Politicians of other parties, without any threat to themselves, can embrace the argument.
My original review of the book, which I tore up, said that there really were two books here: the one David published, and the other one he hasn’t published. The other one, which is hinted at the whole way through the book, has the policy conclusions that one would draw from this. But there’s a very important political lesson there, which ought to encourage other leading politicians to write and possibly separate the analysis from the conclusion. There’s no one else in the House of Commons with the intellectual ability to write a book like this. David is at the centre of a big feedback. Here is a genuine Green Paper.
DW: It’s very good of you to see it like that. There is an assumption in politics that you must have a ten-point plan, otherwise you will not get coverage — so I endorse what Frank said.
DJ: Looking forward, do we think there is a new politics that can be built, and which isn’t necessarily in the old Left-Right categories, which will help to address the younger generation’s problems? There they are, having to inherit these problems, and this is going inevitably to mean shaking up the political kaleidoscope. We’ve already seen this with the expenses scandal and other things, but will it perhaps create new alignments, force us to rethink our politics?
FF: What I would like to see resulting from this book is that the next government, whoever it is, starts a discussion with the baby boomers, saying we think there is a case for redistributing — how might you best achieve this yourself, and how might we help you achieve it, rather than us come after you with a club and take money from you. This approach strengthens another great theme of David’s, which is of little platoons: you’ll actually be increasing their standing, their wealth, their muscle in the economic and political debate, which I don’t think governments can do.
DW: Frank has just launched the next stage of the debate. After this kind of foundation, where I think we’ve got an agreement that there is an issue, though a disagreement about whether it’s just been as a result of a series of misfortunes or it’s been deliberate, the next thing is indeed lots of ideas. And as always Frank is going to be more fertile in ideas about what kind of policies follow from this than just about anyone else in the House of Commons. So I’d like to return the compliment.
DJ: It will encourage a lot of readers that the intelligent elements in both parties agree about quite a lot — though not everything.
FF: Might I just add one more comment, which is a compliment to David? When I read this I thought, when did I last read another book that made me think differently? And I shamefully have to say that I had to go back to 1961 in my second year of university when I was told to read Seymour Martin Lipset’s Political Man. Of course it’s now a common or garden idea — the sociology of politics. But nobody had written anything like it, as far as I’d read. And The Pinch is another big jump in the debate, although I still can’t understand the title.
DW: It was the publisher who came up with it. It’s partly a contrast to Nudge last year, it’s partly an implicit suggestion that the baby boomers pinch things from their kids, and it’s also a sense that we’re feeling the pinch.