Baby boomers gained from university access, housing and pensions

The claim has been made that baby boomers, and late baby boomers in particular, have done rather better than the generations that followed.

This argument has been around for some years, but my interest was piqued by comments from the former foreign secretary William Hague, now chancellor of the University of Oxford and born in 1961, who argued a few months ago that the early 1960s is one of the best periods in history in which to have been born.

When I was young, I do not remember fairness between generations ever being given much thought, and the labelling of different cohorts such as Generation X, millennials, Gen Z and Gen Alpha was not quite the thing it is now. The baby boom was talked about, but more as a simple demographic phenomenon. Now, generational analysis seems to be everywhere, from TV comedies like Hacks and Only Murders in the Building to office-place chitchat.

But with generational identity politics alive and well today, let us examine the evidence. I find Hague's claim fascinating and plausible. But is it right? Have my schoolmates and I done well, too well? I cannot cover everything, so I will focus on England, and three key areas: higher education, pensions and housing.

The extra 9% tax on earnings paid by younger graduates is an obvious difference to the treatment I received. In my case, the government actually gave me an annual maintenance grant and covered the cost of tuition.

Younger graduates feel this sharply. Natalie Whittaker, 27, told the BBC recently that debt from her bachelor's degree now stands at £75,500, up from £52,000 when she graduated. We were told it is just the price of a coffee, you won't even notice it leaving your pay cheque, she says. But now she's making repayments and thinking, hang on a minute, this isn't the price of a coffee.

There are also suggestions that the state might actually be making a profit from graduates. Recent work by the consultancy London Economics finds that the 2022 cohort of graduates will pay more into the exchequer through the loan system over their lifetimes than their degrees actually cost.

But I would not read too much into the overall profit the government is allegedly making. At a different time, the Institute for Fiscal Studies came up with the opposite result to London Economics.

In fact, the student loans issue is much more ambiguous than often realised, because while today's students do pay far more than I did, a lot more of them have the chance to go to university.

By 2022/23, 49% of state school pupils from England had started higher education by the age of 25. What was once a privilege for a few has become an entitlement for half of young adults.

So in this case, the victims of injustice are arguably not the students choosing to take out a loan and pay for college now, but the many people I went to school with who were never even offered a choice about whether to borrow and study at all.

The English student loan system might look unfair, but has been designed precisely to make the growth of graduate numbers possible, while also being fair to the declining proportion of non-students. In other words, the loan system aims to provide for fairness between generations, not fairness across generations.

There is one other very important feature of the student loan system though, which has angered some students. While it was not designed to be a big money-maker for the government overall, it is designed to make money out of some better-off graduates to cover the cost of subsidising some of the less well-off.

This comes down to the fact that it is not a true loan like a mortgage which you have to pay back over time regardless of your means. Instead, it is more like a personalised tax. And many will never earn enough to pay back the full cost of their higher education. The system is designed to cover the losses on those lower income graduates from the profits made from higher income graduates. Though, interestingly, the very-rich graduates have been penalised less than the quite-rich, because they can pay off their loan quickly and avoid paying the high interest rates.

So if you made it to university in the 1980s, you would have been much better off then than now. In my years, students were subsidised. Now, the top students subsidise others. Even if my generation overall was not particularly lucky when it came to higher education, those of us who did go to university really were the most spoiled of all.

As it happens, I lost money on that flat when I sold it in 1995, but still upgraded to a bigger flat which soared in value over the two decades I held it.

That tells you the basic story of house prices in England, which rose relative to earnings from the early 90s to 2021. If you managed to buy a property before the mid 90s, as many of the boomers did, you have likely enjoyed substantial capital gains. If you came into house-buying age after 2015, you would already have drawn the short straw.

Lauren Finch, who earns a £24,000 annual salary at a GP surgery, told the BBC last year that it was soul destroying to still live with her parents aged 29, adding that she often house-sits for friends just to get a sense of freedom.

Interest rates complicate things slightly. Globally, in recent decades, interest rates have fallen very significantly, providing a huge gift to younger buyers who can now borrow at much more favourable rates than I could when I first bought. Few house-buyers would like to revisit the world of the 15% I remember paying on my first mortgage.

But there are only so many houses. The fact that it is cheaper to borrow means the price of houses has to go up, to ration the available supply. The gift of low interest rates comes with the burden of high house prices.

The timing was propitious for those who bought as this transition from a high interest rate regime was occurring. I was lucky in that regard, as were many of my cohort.

That all being said, there has been something else going on in the UK housing market which means that even among those born in the baby boom years, there is a big degree of inequality.

London and its catchment area have enjoyed bigger gains than elsewhere. When I left university in the mid-80s, London had been seen as a city in decline. The population had been falling for years; the words inner city were regarded as a mark of degradation. But then by 2000, London had found its mojo and had become a global hub again. And property prices reflected that.

London's adult population between 1996 and 2021 grew by 29%, while the number of homes only grew by 23%. No wonder it is hard to buy or rent in the capital. In the rest of England, the number of dwellings and the population has grown in a much more balanced way.

Finally, we need to look at pensions, where I think it is fair to say the baby boom generation have looked after themselves rather well. They are enjoying the benefit of pensions paid for by today's working population, which are notably more generous than the ones they paid their parents, and likely more generous than those to be received by their children.

Prior to the baby boomers reaching retirement, pensioners were the group most associated with poverty. But between 1995 and 2010 pensioner incomes doubled in real terms and since then, they have stabilised at that new higher level.

Some of today's pensioners still receive money from the State Earnings Related Pension Scheme, a very generous programme that accepted new entrants from 1978 until 2002. It was scrapped as it was deemed unaffordable. Then of course, most receive a basic state pension, which has been bolstered since the early 2010s by the triple lock, a policy that cost far more than ever imagined.

But the other, and perhaps greatest piece of luck was that my generation worked in an era in which employers, public and private, offered membership of defined benefit pension schemes. That meant that through one's career, we earned entitlements to a decent pension set at a fixed proportion of salary.

Instead, most millennial and Gen Z employees now accumulate savings in a personal pension pot, which is invested and pays out whatever is in the fund. They may be lucky with the amount they earn on their savings; they may be unlucky.

But the really striking thing is just how much employers have been putting into each type of pension. Looking back at ONS data, you will see that for the defined benefit pension, the guaranteed scheme enjoyed by some boomers, the typical private sector employer contributes 15% to 20% of salary every year. It is a substantial cost, and explains why employers withdrew them. For the defined contribution pensions, the ones hoisted on millennials, the private sector employer typically pays in 3% of salary. That is quite a difference.

Again however, we also need to acknowledge that many people of my generation did not have a defined benefit pension. In 1997, before the mass closure of such schemes in the private sector, they were still just a minority luxury.

Put simply, the country is not as rich as it would like it to be: year by year, wages do not grow as fast as we would expect; taxes have to be higher to pay for things; imports are more expensive to buy. The lack of economic growth surely accounts for a shared sense of material deprivation.

Broadly speaking, if the economy grows at a per capita rate of 2% a year, which we regarded as normal in the 1980s and 90s, then every fifteen years, average incomes grow by about a third. Each cohort is comfortably richer than the one before.

But when per capita incomes grow at an average of 1% a year, which is closer to the experience this century, average incomes only grow by about 16% over a 15-year period. That is not enough to ensure that all age groups are richer than their predecessors.

Even though the baby boomers are not the richest of cohorts, some of us have been blessed to have lived and worked in a country that seemed to be on a growth trajectory, things were getting better. It is odd to say, but I would wager that most of us would rather live in a poor country where things are improving, than a richer one where everything seems to be in decline.