They’ve Never Had It So Bad

“Most of our people have never had it so good.” That was the message of the Conservative Prime Minister, Harold Macmillan, in 1957 as postwar shortages had been overcome. Whatever the economic problems facing the nation, living standards were higher than ever and jobs were readily available. The same message could have been repeated by any of the subsequent prime ministers, except for during a few quarters of relatively mild dips in output and spending, until early 2008.

For young people in particular, the post-war era of never-ending economic growth justified optimism about the future. They could confidently expect to enjoy higher consumption than their parents. Further, the young could over their working lifetimes envisage greater prosperity and more leisure than the previous generation. New entrants to the workforce could take growth and improvement for granted, and improvement did indeed occur with every succeeding cohort of young people. 

Until early 2008. The Great Recession has knocked many assumptions, but it has knocked the assumptions of the young worst of all. National output has now returned to its previous peak, and pensioner incomes and living standards have suffered little damage. But since early 2008 people in their late teens or early twenties have seen a severe economic setback compared with their counterparts 15 or 20 years ago. The key numbers are set out in the Institute for Fiscal Studies’s (IFS) 2014 report Living Standards, Poverty and Inequality in the UK: “Comparing 22- to 30-year-olds in 2012/13 with 22- to 30-year-olds in 2007/8, median household income fell by 20 per cent” after housing costs and in real terms. Older workers (in the 31-59 group) also saw drops in real incomes, but only     half as bad. Pensioners were even less affected.

A drop in incomes by a fifth may seem startling and implausible, but detailed evidence substantiates the IFS analysis. Car ownership among the young stopped rising about 20 years ago, but more recently it has gone into reverse. In the mid-1990s 80 per cent of men in the 21-29 age range had a full driving licence. The latest official figures, for 2012, show that the ratio had dropped to just over 66 per cent.

To open the front door into one’s own home for the first time is a rite of passage in modern consumerism. Here too standards have gone backwards. The IFS report says, “Just over a quarter of people aged 22-30 live with parents . . . This proportion rose by 7 per cent [from just above 23 per cent] between 2005/6 to 2007/8 and 2010/11 to 2012/13.” For those living away from their parents, home ownership is less accessible. The latest English Housing Survey, from the Department for Communities and Local Government, showed that the proportion of under-35s paying a mortgage fell from 21 per cent in 2008 to 18 per cent in 2013.

Changing expenditure patterns may be part of the story. Young people today are huge consumers of social media and the internet, neither of which existed in any meaningful sense 25 years ago. As official statisticians do indeed have great difficulty fitting entirely new products into the measurement of changes in consumption, a shift in spending from cars and houses to mobile phone bills and app subscriptions may imply that people in their twenties are doing less badly than it appears. Even so, the dotcom bubble 15 years ago was premised on the ability of the new technologies to generate faster productivity growth, which does not seem to be happening at all.

So successive postwar decades delivered increasing living standards for all age groups. After the Great Recession the old emerged more or less unscathed and the middle-aged fell back only modestly. By contrast, the young have experienced a major deterioration in living standards. The obvious question is “why?”. The IFS is staffed by researchers who move in and out of universities, and it is hardly surprising that their report claims that “rises in participation in education are clearly” beneficial “in their own right”. But an important policy issue is raised by the poor outcomes of current new entrants to the UK labour market. Is the decline in outcomes due to these people’s characteristics or to other factors?

A separate IFS report, in 2011, began, “Public spending on education in the UK grew rapidly during the 2000s. Over the decade between 1999/2000 and 2009/10, it grew by 5.1 per cent a year in real terms, the fastest growth over any decade since the mid-1970s.” Surely the young people of today should be better-educated, and hence better able to cope with the demands of a modern economy, than any previous cohort of young people. But they are struggling. On the face of it something has gone badly wrong.

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