The spiralling cost of living will have a “crippling” impact on young people, experts have warned, as a new report found that under-30s are disproportionately being forced to bear the brunt of the costs of social care reform and Covid.
Research by the Intergenerational Foundation thinktank, to be published on Monday, claims that younger workers are being unfairly targeted by the government in a “tax by stealth” caused by freezes on income tax brackets and the student loan repayment threshold,as well as April’s national insurance rise.
Low-earning young people will be hit hardest by the changes, claims the report, having a significant impact on their take home pay, disposable income and potential to save for housing and pensions.
Researchers calculate a graduate earning £27,000 a year will see their deductions rise by about 20% over the next four years – from 18% of their pay to 22%. They predict their disposable income will drop by almost 30%.
They calculate that younger workers will pay more than 10 times more in national insurance contributions each year than workers aged 65-plus.
Labelling under-30s the “packhorse generation”, the thinktank claims they are being targeted by the government, which it says is using high inflation to pull more low-income, and especially younger, workers into taxation sooner.
Angus Hanton, co-founder of the Intergenerational Foundation, said the policies will have a “crippling” impact on young peoples’ lives.
“Our figures suggest many young graduates will see about a 30% drop in their disposable income within the next four years. So it’s really going to bite. And that’s before you take into account probably a 50% energy bill hike in April,” he said.
“It will hit young people harder than older generations – partly because they’ve got less margins of safety. But also, largely because the government are taxing earned income so heavily and unearned income so lightly.”
Hanton accused the government of being “intergenerationally unfair” in its policies. It will, he believes, lead to many young people feeling resentful.
“After all they have sacrificed to protect older generations during the pandemic, lower-earning younger generations will be forced to shoulder the cost of government promises to increase social care spending and reduce Covid-19 debt, when both spending decisions were made to protect older generations,” he said.
Instead, he added, they should charge national insurance on landlord and dividend income, which he says would be fairer and calculates would raise £24bn a year.
Alana McSkimming, 23, would like to move into her own place, but is living with her parents because she cannot afford to rent or buy in the face of rising living costs. The marketing executive from Woking feels “stuck”.
“I’d like to move out, I’d like to go out on my own, but the cost of living means I would be spending every single thing I earn,” she said. “There would be no disposable income, no savings and realistically I wouldn’t be able to move out on my own.”
After graduating in 2019, it took her a year to get an apprenticeship and in August she got her current job, working remotely from home. She believes there is “huge generational inequality” – with many young people unable to get on the housing ladder as their parents might have done – and fears the generation after her will be even worse off. She doesn’t believe government policies are targeted to benefit young people.
“You feel like you’re never really taking that next step in life, you’re never growing up because you’re never able to have a place to call your own,” she said. “You don’t feel you’re reaching milestones your parents would have reached.”
The Institute for Fiscal Studies (IFS) published a report on Thursday that said students in England were being hit by stealth cuts and tax rises and accused the government of using high inflation to “quietly tighten the financial screws”.
A Treasury spokesperson said: “We recognise the pressures people are facing with the cost of living, and are providing support worth around £20bn this financial year and next to help.”