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Quarterly Issue 3 Special Report – A fair and sustainable recovery

Don’t burden millennials with the COVID recovery bill

Author: ICAEW Insights

Published: 19 Sep 2020

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Policymakers should ensure the burden of rebuilding is shared equally and not unfairly borne by the young, writes Mark Rowland

Millennials endured the biggest financial hit from the 2008 recession. A decade on, that generation is still struggling to get on the property ladder or even save for a home, with many largely relying on their baby boomer parents. So must the youngest adults in our society take the hit once more from the crisis unfolding from the pandemic?

Despite the growing wealth disparity between the “boomer” and millennial generations, all generations think they’ve been treated more unfairly than their predecessors, according to an ICAEW report “Intergenerational Fairness: A Survey of Citizens in 10 European Countries”. So, how do we make the recovery fair?

“It’s not easy to answer,” says Philippe Seidel Leroy, policy and EP liaison officer of AGE Platform Europe. “Our overall stance is that it needs to be shared between generations. And young people are already paying quite a big toll in terms of education delays and precarious jobs. What is important is to show that they’re not the only ones.”

AGE Platform Europe says that governments should start paying down debt soon but, crucially, stretch repayments over a longer period. Seidel Leroy says this has, in part, been informed by the legacy of the last crisis. “We know today that this was the wrong way to go; that austerity came too early, that it prolonged the crisis. It lingered on until 2014 before labour markets, poverty and social exclusion figures recovered, especially poverty and social exclusion, because that’s the longer-term impact. You might have employment going up relatively fast, but you have a lot of precarious jobs. Those are not necessarily quality jobs.”

On the flipside, Seidel Leroy points out the disproportionate health burden the COVID-19 pandemic has put on older generations. The over-60s are most likely to die from the virus, and are more reliant on public services such as healthcare, which are already under strain. “[The lockdown] has been a huge sacrifice to protect older and more vulnerable people. If we hadn’t done that, our hospitals would have been overcrowded with COVID-19 patients, and we would have seen more deaths if we hadn’t taken these drastic measures. As a result, I’d be hesitant to say that we’ve favoured one generation over another in this.”

We’re all in it together

The “all in it together” message is vital to ensure a fair recovery process, says Carina Autengruber, president of the European Youth Forum. “We need to stop this blame game that is currently building between countries, but also between different generations. Young people are being targeted for spreading COVID-19 – this is something we need to avoid. Now’s the time we really need to work together in order to find solutions.

Every generation has some inputs.” Autengruber agrees that the focus should be on creating less of the kind of precarious jobs that exist in the gig economy. During the last crisis, youth unemployment increased sharply. The aim is to avoid it happening again, she says. “We really need to focus on how we can ensure that our rights are being safeguarded. And that’s why it’s so important to have investments now in quality jobs. Not just any jobs – sustainable jobs.”

The pandemic has opened up the possibility to build a more sustainable approach to life and work. “It’s an opportunity we didn’t want but it’s been the case throughout history that a pandemic is a major reset for society,” says Thorfinn Stainforth, policy analyst for the Institute for European Environmental Policy (IEEP). Stainforth is one of the co-authors of “Green Deal For All”, a policy report that sets out what needs to be done to achieve sustainability and equity in a post-COVID world. The report focuses on three areas of equity: intra-country equity, looking at issues within each nation; inter-country equity, about co-operation between nations; and intergenerational equity, making sure every generation has the same opportunity to thrive.

Stainforth says: “To make real progress, especially in terms of decarbonisation, it’s going to require some fairly radical changes now. If you don’t address equity issues as part of that, it’s going to become politically very difficult.” IEEP’s policy recommendations include the linking of pensions to green financial products, the integration of green jobs training into adult learning programmes and green volunteering initiatives for senior citizens.

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Wealth tax on the way?

The solution to funding the recovery itself, says Stainforth, is to introduce some kind of wealth tax to address the accumulation of vast wealth among a relatively small number of individuals and corporations – an idea that Autengruber and Seidel Leroy both agree with. 

But this poses some challenges; what’s to stop individuals and corporations from moving to more “tax-efficient” nations?

“It is a tricky situation,” says Stainforth. “As we’ve seen, the European Commission is struggling with that just now; the court ruled against them in the Apple case, for example. It’s not necessarily easy. We need to somehow link taxation more to one’s activity in a given region, more than a theoretical residence. It’s not exactly our speciality, but you would need to switch the system.”

Doing so would require international cooperation, and encouraging low-tax jurisdictions such as Ireland and Luxembourg to dial back their favourable tax systems is no easy challenge. “It’s a political problem,” says Stainforth. “Hopefully there can be a bit of pressure to move it ahead now because it is really dominating the economy.”

When politics is factored into any sustainable, fair recovery from the pandemic, finding a solution becomes a lot more complicated. For example, the perceived wisdom is that older people are more likely to vote than younger people, which could make politicians reluctant to invest in measures that benefit younger generations, particularly when the next general election will always be nearer at hand than the realisation of any lasting legacy.

The answer is to find common ground

Part of the solution is to start with common threads. ICAEW’s Intergenerational Fairness report found commonalities across different countries and generations over what a fairer system would look like. Poverty, unemployment, securing pensions and social care all emerged as priorities.

Environmental sustainability is climbing up the public’s priority list. “An event like this that exposes our unpreparedness can make people more aware of the need to change,” says Stainforth. Above all, this is a potential game-changer for the way we live, work and produce. 

With the prospect of global pandemics and environmental disasters occurring more regularly and inequality at a high, solutions must become more sustainable for future generations.

Autengruber concludes: “During this crisis, we were confronted with a broken system. Now is the opportunity to create the society we want to see. We need to find new ways to think about our economy – it should be based on more than GDP. It should include the wellbeing of our people and planet. But of course, this requires that we take action now.”

The ICAEW view

Just 13% of baby boomers went into this crisis with low financial resilience, compared to 23% of Generation X, 26% of millennials and 27% of Gen Z. That’s according to a report by the UK’s Financial Conduct Authority, Coronavirus and intergenerational difference – the emerging picture.

When it comes to mortgage and credit deferrals, 16% of millennials deferred their mortgage payments, and 27% deferred credit payments. The figures are 12% and 15% respectively for Gen X and just 8% and 9% for boomers. Although the older generations have paid the biggest cost health-wise from the pandemic, in cold economic terms, the younger generations have been hit hardest. “If you look at 16-24-year-olds, they’re mostly working in casual work in sectors that continue to be hardest hit,” says Philippa Kelly, Head of Financial Services, ICAEW.

“That generation is already coming from behind in many ways, whether it’s student loan debt, the type of jobs that are available, house prices – everything is really compounding their situation.” ‘There is a public consensus around health spending, but the victims of the economic crisis will see huge rises in childhood poverty and in hunger among young people,” adds Francesca Sharp, Technical Lead on Climate Change and Sustainability, ICAEW.

“Unless we’re willing to protect and ringfence the type of economic protections that are the equivalent of those we’re putting in place in terms of health, we will not see a recovery that is fair across the generations.”