Could the Budget help turn Generation Z into generation debt?

As a critical step to keep the UK's national debt under control, Chancellor Rachel Reeves' forthcoming Budget is expected to support tax hikes. Some have argued that keeping the national debt down protects younger people's financial interests. That's because if the country's debt soared dramatically, it would be younger people who would have to pay the bill to pay for the interest. And it will be deducted directly from their paychecks by higher taxes. Over the past 15 years, Generation Z, or those born between 1997 and 2012, have been hit in the wallet by benefit reductions and dramatic hikes in university tuition fees. In comparison, the homeownership rate among those born since the 1990s is much lower than that of previous generations, owing to the relative difficulty they had in getting on the housing ladder. However, most politicians, as well as the chancellor, have pledged to keep paying for the state pension's triple lock, which means it will increase each year by the highest rate of average salaries, inflation, or 2. 5%. There's growing worry that current tax and budget plans benefit pensioners while younger generations are unjustified, and that the triple lock in particular, which will raise public spending and national debt in the long run, will raise long-term. So will this budget really benefit younger generations? Could it help saddle them with higher taxes and more debt? The numbers have been monitored by BBC Verify, who has been monitoring the numbers.

Why is the national debt a concern?

The UK's national debt stands at just under 100% of UK GDP, which is the value of all the products and services that the economy produced in a year. The Office for Budget Responsibility (OBR), the government's top forecaster, has warned that if taxes are raised or reduced, it could rise above 250% over the next 50 years. Some economists doubt that such a rapid and sustained debt rise will materialize, arguing that it will likely lead to a bond market crisis long before then and see UK government borrowing rates climb to new heights by private investors, which will eventually require a change in tax policy or spending. However, the OBR's long-term prediction is intended to highlight that the UK's public budgets are now on what it describes as a unsustainable trend. According to the OBR, our ageing population is the primary catalyst for rising long-term spending, which explains the increase in national debt, which means that the government must invest more on the NHS, social care, and the state pension each year. Over the next five decades, the number of people over the age of 65 is expected to rise from 13 million to 22 million. That would bring the old age dependency ratio - the ratio of older people over the age of 65 relative to those aged 16 to 64 - from 30 percent today to almost 50% by 2070. The state pension age is 66, but for people born after 1990, it's likely to be pushed higher to keep employees working longer and reduce the old-age dependency ratio. However, the national debt will almost certainly rise at a much faster rate than it is today due to today's tighter spending pressures.

Do younger people lose out on public spending decisions?

Since 2010, the government has tended to support older generations and take money away from younger generations. According to estimates by the Resolution Foundation, over the past 15 years, the over 65s have earned an extra £900 a year, while those under the age of 65 have lost an average of £1,400 a month. The driving factor behind this has been rising inflation in the state pension since 2010, along with government reforms of working-age insurance, including housing subsidies, unemployment insurance, and universal credit. TheOBR expects that the triple lock will continue to raise state pension expenditures in the coming decades. According to the OBR, if the state pension were only linked to increases in average wage increases, its share of GDP would only rise from 5% today to 6% in 2070. However, it claims that the cost of the triple lock will raise government spending on the state pension to nearly 8% over the next 45 years. Even if it is just two percentage points, it amounts to around £60 billion in today's money, and it would be younger working age people who would have to pay for it through their taxes.

Which generations will benefit and lose from the Budget?

The effect on different age groups will vary based on which taxes rise and which services are covered. For example, if high-value homes were to be subjected to additional charges, it would affect older people more because they tend to have more property. Pensioners still have to pay income tax, but are no longer subjected to employee National Insurance, as shown by their earnings. In her first budget in October 2024, Andyounger people are expected to have been harder by the rise in employer National Insurance contributions Rachel Reeves introduced in her first year, which appears to have slowed down job recruiting rates. All taxpayers have a common desire in seeing the debt burden reduced as a result of the economy's size. However, one of the reasons for the government's borrowings is to pay for improvements in infrastructure, such as roads and housing. Any economists warn that if ministers cut that kind of spending and borrowing out of fear of the national debt, it could be counterproductive and irreversibly damaging to younger people. As for the triple lock, younger people could profit from its continuation until they eventually retire themselves, according to a survey that shows that 18-49 year olds are generally in favour of keeping the policy. However, many economists agree that younger people should also be concerned with a rebalancing of the care of older and younger generations through the tax and pension system.