The UK eats its young

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By Leith van Onselen

Earlier this month, I talked about the coming inter-generational war, whereby the ageing of the population and increasing transfer and welfare payments to the elderly (paid for by a declining tax base of younger people) threatens to permanently constrain global economies and create an inter-generational war between asset rich (and lowly taxed) older people and asset poor (and highly taxed) younger people.

Last year, The Independent ran a great story in the UK explaining how the over-65 population were proportionally better-off than at any time since 1997, while under-30s bore the brunt of the recession:

Britain’s growing army of pensioners is getting a better deal from the state than at any time in the past 15 years while the young bear the brunt of the recession.

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Research published today by the Institute for Fiscal Studies (IFS) reveals that the wealth of the elderly has grown faster than that of any other age group, while the amount they pay in tax has progressively fallen.

A separate study, also released today, suggests that, over a range of indicators, the young have lost out compared with older generations since the financial crisis of 2008.

The two pieces of research call into question David Cameron’s pledge in a speech yesterday

not to means-test benefits for the elderly, while suggesting removing some entitlements for the young unemployed.

The IFS research, commissioned by the Nuffield Foundation, found that more than 40 per cent of pensioners are now in the top half of the income distribution bracket, compared with 25 per cent 20 years ago.

Pensioners’ incomes have risen by 29.4 per cent over the past 12 years, while non-pensioners’ incomes have risen by 26 per cent. At the same time, changes to the tax and benefits system mean pensioners are paying less to the state than people of working age…

A pensioner with a gross income of £50,000 now loses only 20 per cent of that in direct taxes, while a working-age person with the same income loses 29 per cent. This is due to cuts in the rate of income tax that pensioners pay along with rises in national insurance, which they don’t.

Pensioners are also eligible for a series of non-means-tested benefits, such as free TV licences, winter fuel allowances and free transport. The Government has also restored the link between pensions and earnings, with a new guarantee that pensions will rise by whatever is highest: earnings; inflation; or 2.5 per cent.

A key area that disadvantages young people is the highly restrictive UK planning system, which has severely limited land supply and forced-up the cost of housing – benefiting those that already own their homes but punishing those trying to get on the housing ladder. These planning restrictions come in a number of forms.

First, greenbelts have been established around UK cities, which have excluded large swathes of agricultural land from urban development (see below graphic).

In the 1990s, the Central Government also tightened land supply even further by explicitly requiring that 60% of all new land for housing must be brownfield land – i.e. land which has already been developed for some other purpose.

The centralised fiscal system in the UK has also created a major road block to the provision of housing. Local authorities – which are the primary decision makers on development and have statutory obligations to provide services for new houses – receive very little revenue from increased population and housing. As such, these local authorities tend to be biased against development, which limits the provision of housing and related-infrastructure.

Combined, these regulatory constraints on new housing construction have meant that housing supply in the UK has been incapable of responding quickly and efficiently to changes in demand, thus placing upward pressure on prices and creating expectations of future capital growth.

Over the past week, we have received two prime examples of the forces underpinning the restrictive UK planning system.

Yesterday, in the Daily Mail, the head of the UK National Trust, Simon Jenkins (who himself owns two homes), railed against the idea of allowing any development in rural areas, thereby precluding young UK citizens that have grown up in these areas from living near their parents:

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Children raised in the countryside have no automatic right to live near their parents’ homes when they grow up, the chairman of the National Trust declared yesterday.

Sir Simon Jenkins said the majority of new homes should be built in towns and cities, rather than in unspoilt rural areas.

His comments are at odds with existing policies that encourage affordable housing to be built in villages for local families.

Sir Simon said: ‘Somehow it is considered the right of people in the country to have their children living next door at public expense. I don’t understand it

“Are you going to say that people who have lived in the Windrush Valley [in the Cotswolds] for 100 years have a right to go on living there? No, I’m afraid they don’t. Sorry”..

A spokesman for Priced Out, the first-time buyers’ campaign group, accused Sir Simon of being “out of touch with the aspirations of hard-working young adults who have been priced out of a home in their local area”.

The National Trust’s comments come after a UK council ordered an elderly lady to rip-up her garden (pictured below) for breaching green belt rules. From the Daily Mail:

When widowed Jean Bailey moved into a new home, she set about transforming a boggy wasteland into a pretty garden with a pond, shrubs and flowers.

It soon became a haven for wildlife, populated by frogs, newts, birds and insect life.

The labour of love took several years and cost the best part of £10,000…

Now she is facing heartbreak, as council officials have ordered her to tear up the garden, and return part of it to the muddy state she found it in.

Ironically, their reason is that she has developed part of the garden on greenbelt land.

The work was done without planning permission and, say officials, it ‘erodes the character and quality of the area’ in Harriseahead, Staffordshire.

‘You must return the land to agricultural use and character, removing all garden paraphernalia,’ they have told her.

The retired florist has been warned that if she does not comply, council workmen will do the work and she will face a hefty bill…

The issue dates back to 2006 when Mrs Bailey’s daughter and son-in-law bought the cottage and she moved into a granny flat extension.

As part of the deal, the sellers threw in an adjoining plot to create a bigger garden. Mrs Bailey said: ‘If I knew it was greenbelt land I would not have built on it.

‘But these greenbelt laws are there for a reason: to protect against big developments and safeguard wildlife.

‘I’m protecting wildlife with my little pond and I’ve used up 10ft of greenbelt land which was an eyesore before.

Councillor Eddie Boden, the cabinet member for planning at Newcastle-under-Lyme Borough Council, said: ‘Planning requirements have to be obeyed.

‘No special circumstances exist to justify what has to be considered to be inappropriate development within the greenbelt.’

As long as this type of mentality exists in the UK, land/housing supply will continue to be highly restricted, prices will remain unaffordable, and the young and disadvantaged will continue to suffer to the benefit of the well-healed (generally older) population.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.