Recessions have winners as well as losers, even if the latter are in the majority. Younger people normally lose most because, not being already established in the labour market, they find it harder to get jobs and hang on to them. But if you are young (under 45, say) and in a secure, well-paid job, an economic slowdown can be good for you since it's often accompanied by falling prices in assets such as houses and shares, which you can then snap up cheaply.
Not this time. House prices, despite a deep slump in the immediate aftermath of the financial crash, have recovered so well that they are almost back to their pre-crisis peak in London and the south-east. Similarly, the FTSE index of leading shares is only about 10% down from where it was at the end of 2007. If younger age groups are to acquire decent pension prospects, the defined contribution funds – on which nearly all those working in the private sector depend – need to buy cheap shares and other financial assets. But there's little prospect of that just now.
So for nearly all young people, this recession (which officially ended long ago, but doesn't feel as if it did) is lose, lose. You'd think, therefore, that MPs, scrutinising George Osborne's budget, would focus on how it could have done more for the under-45s. Not so. In its report this week, the Treasury select committee (average age 54) lamented the "redistributional effects" of quantitative easing and record low interest rates. Elderly savers have lost out. In particular, the newly retired received pension annuities far lower than they would have got a few years earlier. Annuities depend on the yields (interest rates) of government bonds (or gilts), which were depressed by the Bank of England buying gilts under its quantitative easing programme. The government, the MPs declaim, should "mitigate" the effects, which (I think) means compensate the losers.
The MPs are talking about our old friends, the baby boomers (of whom I am just about one), who, for once in their lives, have run into a patch of bad luck. Perhaps Treasury select committee members are unaware of this generation's amazing run of good luck, highlighted in several books, including one by a Tory minister, David Willetts.
For example, between 1987 and 2006, house prices rose nearly 2% a year faster than real earnings. This was redistribution with a vengeance. In effect, Willetts calculates, something like an entire year's GDP was transferred to established homeowners from future homeowners. As a result, the over-55s own two-thirds of the UK's housing wealth. The slump in annuity rates was an undeserved blow that locked people into lower than expected incomes for the rest of their lives. Equally, the rise in house values was an undeserved piece of good fortune that left owners with a potentially lucrative lifelong asset which can be used to generate cash. That's how the post-Thatcher capitalist economy works: it's like a roulette wheel where your number comes up some days, but not others. The wheel would spin badly for the older generation if house prices went into a steep and permanent slump. But as we have seen, that hasn't happened. Why? Because the Bank of England drove up asset prices through … yes, quantitative easing.
Consider also the wider story about pensions. Millions of older private sector workers benefited from defined-benefit schemes. Their pensions depend, not on market vagaries (the casino again), but on mathematical formulae linked to their final salaries. Over the past 15 years nearly all these schemes have been closed to younger workers, but the rights of older employees and anybody already retired are protected. Company profits, earned by employees of all age groups, make up deficits in the schemes. That, too, represents redistribution from younger to older generations.
As for state pensions, the government has developed a special win-win formula. If inflation is higher than wage rises, pensioners get the annual inflation rise. If wages run ahead of inflation, they get the average annual wage rise. And come hell or high water, they get at least 2.5%. Again, it's redistribution across the generations on a dramatic scale.
Budgets are rarely discussed in this light. Redistribution across the generations – and not just across income groups – is one of the state's central functions. A substantial transfer of resources from productive workers to children and old people is right and proper. But the most significant redistribution often occurs under the radar, sometimes in unintended ways.
The British are curiously sentimental about older people. Call something a "granny tax" and uproar inevitably follows, with any opposition party vowing to oppose it, as Labour did on Thursday when MPs voted on Osborne's freezing of age-related tax allowances for over-65s. But older generations have one other decisive advantage: they are far more likely to vote – the over-55s account for around 40% of general election votes – and to lobby MPs than younger people.
Behind the select committee's demand for "mitigation" for savers and pensioners lie overflowing inboxes and postbags carrying plaintive messages. Almost anybody under 40, and particularly under 25, could lament their luck in being born at the wrong end of time. They face poor job prospects, a struggle to acquire housing wealth, and dismal chances of building up pension entitlements. But if they want "mitigation", they need to get to the ballot boxes and write to their MPs.
