Some of the conclusions of the research undertaken over the last year by the Intergenerational Commission at The Resolution Foundation make for very sobering reading. The commission was set up to explore the questions of intergenerational fairness that are currently rising up society’s agenda (illustrated so well during the Brexit referendum), and to attempt to devise a means of repairing the social contract between generations.
What they have found is fairly chilling. Millennials (i.e. those reaching young adulthood in the early 21st century) are at risk of becoming the first ever generation to record lower lifetime earnings than their parents. Results published last year show that today’s 27 year olds (born in 1988) are earning the same amount that 27 year olds did a quarter of a century ago, and the average millennial has actually earned £8,000 less during their twenties than those in the preceding generation, Generation X.
As if that wasn’t bad enough, there is evidence that pay is being suppressed by companies struggling to deal with the rising deficits in defined benefit pension schemes. Some estimates suggest that as much as £35 billion is being diverted every year.
Millennials – earning less, saving less
So the millennials are earning less than previous generations, which is going to have implications for their quality of life further down the line. Especially as many of them can no longer access the more generous defined benefits pension schemes of their parents’ generation. But it is also affecting their quality of life now. The parents of the millennials were 50% more likely to own a house when they were their children’s age, and there are serious financial consequences of living in rental accommodation for extended periods. Millennials spend an average of £44,000 more on rent in their 20s than their parents did – more than the average deposit for a first time buyer.
This inequality also plays out in our welfare system. The protection of pensioner benefits in recent years, alongside restrictions on working age benefits, have already shifted the balance of support towards the older generation. And the signs are that this will only get worse – tax and benefits policies due to be implemented over the next four years will take £1.7 billion from millennials while giving away £1.2 billion to their parents’ generation.
The millennials have already been through higher education, but what will this shift mean for their children’s ability to go to university? How will the value of a degree be affected by this level of socioeconomic change? How will higher education need to adapt and evolve to meet the changing needs of a society who will have very different priorities to previous generations?
With the majority of wealth becoming concentrated in the older generations (those aged 65-74 now hold more wealth than the entire population under 45 – a group more than twice the size), and with life expectancies of that older generation increasing every year, those entering higher education in 10 years’ time are either going to be highly dependent on their family’s generosity (the social mobility implications of which don’t bear thinking about), or the higher education sector is going to have to do something fairly drastic about the cost of going to university. In the scenario that’s currently playing out it is foolish to assume that the next generation of students will willingly put themselves in the level of debt we see today, when their parents’ experiences will suggest that university doesn’t pay any more.
After all, how much is a degree really worth if you can’t afford a house, don’t have a job, and can’t afford to look after yourself in your old age?
Inquiries and reports – what will they change?
Thankfully there’s already a good head of steam building around this issue because of the short-term drivers. The House of Lords Economic Affairs Committee is currently holding an inquiry into the economics of higher, further and technical education. The House of Commons Education Committee will hold an inquiry on value for money in higher education. A far-reaching National Audit Office inquiry into the higher education market has also been published. On top of that, the Prime Minister has promised a review of student finance and university funding, and at some point the independent review of the Teaching Excellence Framework (TEF) will rule on whether TEF outcomes can be linked to fee levels.
But will it actually change anything? We already know from the Higher Education Commission report, ‘One size won’t fit all: The challenges facing the Office for Students’, that the changes to the funding regime and student number controls that we have seen over the last few years have failed to encourage a diversity of offerings. Instead we have seen an increase in the standard three year, campus-based, full-time model. Higher education has become more homogenised, not less.
A new model
So is it time to be more radical? What else needs to change other than the funding model? The HE Commission’s report contains a wealth of ideas and is a good starting point. If the Office for Students really gets behind these recommendations, we will be a bit closer to a higher education system that will meet the needs of future generations. Ultimately though, the best way to rebalance intergenerational fairness would be to properly recognise the value that a better educated workforce brings to society, and look to create a greater level of public subsidy for higher education.
The abolition of tuition fees is never going to be politically stomach-able, but perhaps we should be considering a new model. A model where the costs of study are driven down by new and innovative ways of delivery, and more of the remaining immediate costs are met by contributions from government (which would in turn reduce the subsidy of the student loan system). Perhaps two year degrees could provide the answer – the cost of the first year could be met by government, with the remaining year funded by the student.
We need to start these debates now, because each generation is becoming increasingly disenfranchised and anger is building about intergenerational fairness. If we don’t find a way to educate future generations effectively, it won’t just be them that suffer.
This article is part of Wonkhe’s HE Futures series. There’s more information about the series here.
One response to “No home, no job and no pension… but at least I’ve got a degree!”
A very scary promo for subsidised two-year accelerated degrees, offered by Winchester University (among others), that pits the young against the old and employers against employees.
Reality is more complicated.
Housing: “In 2013–14, average UK house prices were 6.9 times the level of average earnings – about the same as a decade earlier and still below the 2007–08 peak of 8.1. Young adults are the
most likely to be considering buying their first home. The ratio of average house prices to
the average earnings of 25- to 34-year-olds peaked at 7.7 in 2007–08 and was 7.2 in 2013–
14.” https://www.ifs.org.uk/uploads/publications/bns/BN161.pdf Its always been tough to buy a house in the UK.
Pensions: today’s young people are expected to live longer and have more years of high quality life.
Defined contribution (rather than defined benefit) schemes are a way forward because defined benefit schemes have to hold a large proportion of assets in low-yield bonds, aggravating deficit issues and rendering it likely that the so-called “defined benefit” will actually be a reduced benefit on retirement.
Education and earnings: this is the area that is a concern but not for the reason given in the post. The UK performs relatively poorly in terms of intergenerational income mobility. The UK has an intergenerational income elasticity of about 0.5. What this means is that if a UK citizen earns £10,000 less income than the average income, 50 per cent of that difference (or, £5,000) will be passed on to the individual’s children, who in turn will earn £5,000 less than the average. The reason the UK does so poorly is because of the link between household income and educational attainment: members of poorer households do less well at school. It would be better, therefore, to increase spending on schools and raise standards in early years education instead of subsidising two-year degrees and spending resource on higher education regulation (OfS).