Politicians need to make difficult choices to tackle the housing crisis and other factors holding back social mobility, according to the director of the Institute for Fiscal Studies (IFS).
As the country prepares for its third election in as many years, Paul Johnson told delegates at the Council of Mortgage Lenders’ annual lunch on Friday (21 April) of the need to tackle intergenerational inequality and prevent a “freezing up of social mobility”.
And with the economy still in uncharted waters following the financial crisis, Mr Johnson suggested both parties may need to look beyond their traditional policy base.
“We don’t understand where we are economically,” he said. “The big news remains what happened in 2008 and 2009, and since then we have become much too accustomed to thinking where we are is normal. It is not normal in a historical sense.
“Only half as many people in their early 30s own their own house compared to a generation ago. People in their 20s now are earning less than people in their 20s 15 years ago. We have never seen anything like that.
“If interest rates stay at their current level for a long time, it makes it impossible for young people to save for their retirement.”
Before the Brexit vote, the Conservative government’s priority was to reduce the UK’s budget deficit by cutting public services – but Mr Johnson suggested that course of action was beginning to reach its limit.
“It is very clear [the cuts] are now having an impact,” he explained. “There is a pretense you can continue with this and all will be fine.
“From the other end, from Labour, the message is you can solve all that by taxing the rich and that will raise enough to sort it all out.
“Politicians should be talking about the challenge of productivity and earnings growth, and the things governments can do about that.”
Mr Johnson pointed out that spending on the health service is higher than it has ever been and said the country now faces “fundamental choices” about how its public services should be run.
“Do you raise more tax, or cut other public services, or change the way we fund the health service? That is the kind of debate we need to have,” he said.
“The big challenge relates to the fact that the population in this country is getting older, and older people pay less tax and consume more than those in work.”
The IFS director added that with many pensioners now wealthier than ever before, inheritance is becoming more and more important, and this could hold back social mobility.
simon.allin@ft.com
