IPOD Generation Faces 49 % Taxes

The Government treated young people in the UK with “indifference”, “inaction” and “neglect” in 2007 according to a new report by the independent think tank Reform out today. 

The report shows that while other countries are facing up to the economic challenge of ageing populations, the Government’s fiscal policies are mortgaging the future of a generation. 

Instead the UK should rein in public spending, set new fiscal rules and introduce targeted tax reductions to give young people room to invest in themselves.

University graduates will have to hand over almost half their salaries to the taxman within five years, according to a report which shows the escalating financial burdens facing young people.

 
The “IPOD” generation of young people who are Insecure, Pressured, Overtaxed and Debt-ridden are the victims of an institutional bias that has tipped the balance between taxation and spending against young people in favour of older generations.

 
It argues that while other developed nations, notably the United States and France, are beginning to address this intergenerational bias and to design their public policy around the interests of young people within an ageing population, the British Government has virtually ignored the issue.

 
As a result, the young are being increasingly asked to shoulder the burden of increased public spending on pensions and health services, which are primarily used by a growing number of older people.

 
The report calculates that a new graduate on an average starting salary of £27,155 would be left with only £13,862.26 a year to spend after student loan repayments, direct and indirect taxation and national insurance, pension

Placing much of the blame at the door of Mr Brown and Alistair Darling, the Chancellor, it says many of the changes announced in this month's Comprehensive Spending Review (CSR) added to the difficulties young people face.

 
A decision in the CSR to cut the Capital Gains Tax payable on the profits of selling a second home had helped the wealthy rather than those trying to buy their first home, it said.

 
"The 2007 CSR should have enshrined a new, youth-orientated approach. Instead it presented measures to help the owners of second homes, and established a fiscal framework which will soon encroach upon young people's economic freedom," the report says.

 
The number of young people in the 18-to-29 age group being declared bankrupt had increased more rapidly than any other age group, it noted.

 
The solution lay partly in conquering ''youth apathy" and persuading young people to defend their interests at the ballot box by fighting for public spending curbs, tax cuts and more private contributions to healthcare and pensions.

 
''Perhaps the ultimate responsibility lies with the Ipod generation themselves", it suggested.

 
''Youth apathy has afforded politicians the chance to be complacent on these matters, allowing them to pamper the baby boomers who make up so much of the voting electorate.

 
''In the end, if young people want to see lower debts, fairer taxes, better education and greater opportunity, they should rise from their political slumber and make for the ballot boxes."

 
Reform director Andrew Haldenby said: ''The Government fails to face the facts: high taxation and high public spending impose massive burdens upon both young people and the economy.

 
''The rest of the world has outlined a better approach; an approach which will finally liberate the Ipod generation."

"Since 1997, reforms of the tax and benefits system carried out by the Government - including setting the lowest basic rate of income tax for 75 years - have improved incentives for young people to progress in work.
 
"The fact of the matter is that the number of 16-24 year olds who are in education, training or employment has risen by nearly 700,000 since 1997 and the New Deal for young people has helped over 1.2 million 18-24 year olds into around three quarters of a million jobs since 1998."
 
But acting Liberal Democrat leader Vince Cable said: "This report is a damning indictment of Labour's treatment of young graduates.
 
"A decade under Labour has left many young people facing crippling student debt, high council tax bills and, following the abolition of the 10p rate, higher levels of income tax.
 
"Gordon Brown's obsessive tinkering with the tax system and introduction of top-up fees mean that graduates on modest salaries now face an unacceptably high tax burden.
 
"The tax system should be radically reformed by abolishing the unfair council tax and cutting income tax for people on low and average salaries to ensure that work pays."

* In many countries, 2007 was an extremely positive year for the IPOD generation. International institutions and policy makers - including Ben Bernanke, Chairman of the US Federal Reserve - both identified the IPOD challenge, and set out the right response to it: public spending restraint, reductions in tax burdens and lower borrowing.

 

* The UK has ignored the global analysis. Policies which tipped the tax/ spend balance against young people - higher health and pensions entitlements and higher public spending overall - have remained in place. Specific decisions in both the Pre-Budget Report &Comprehensive Spending Review (PBR & CSR 2007) and the Budget have worsened the situation.

* PBR & CSR 2007 pledged major spending increases on both healthcare and state pensions. NHS spending will increase from GBP90 billion to GBP110 billion (cash terms) by 2010-11. State pensions will increase in line with earnings from 2012, or at the latest from the end of the next Parliament.

 

* For the five years 2002-03 to 2006-07, the Government's initial projections underestimated the eventual true level of borrowing by a total of GBP121 billion (about GBP4,800 per household).

 

* Rather than helping first-time buyers, the proposal of an 18 per cent rate of capital gains tax will help owners of second homes and buy-to-let investors.

 

* The difficult position of UK young people in relation to housing, employment and debt means that the Government's fiscal decisions are even more questionable. Young people are the least likely age group to start a new business.

 

* In 2012, a typical graduate will face an effective tax burden - including near-compulsory payments on higher education and pensions - of 49 per cent.

 

* A new approach is required. Specific recommendations include:

* a new concept for economic policy making - the "investment margin", which measures the resources available to individuals to spend on training, healthcare and retirement;

 

* a "growth rule" for public spending which would deliver a rate of public spending of 35 per cent within two Parliaments;

 

* copayments for healthcare;

 

* targeted tax reductions, with one option being a much higher income tax personal threshold of up to GBP15,000; and

* education reform based on parental choice.

 

Nick Bosanquet, Consultant Director of Reform and Professor of Health Policy at Imperial College London, said: "Protecting today's and tomorrow's young people is a defining modern political issue.

The IPOD generation have been reduced to galley slaves in the public spending empire of the baby boomers.

The Government is in the process of mortgaging the future of a generation."

 

Andrew Haldenby, Director of Reform, said: "The Government fails to face the facts: high taxation and high public spending impose massive burdens upon both young people and the economy.

The rest of the world has outlined a better approach; an approach which will finally liberate the IPOD generation."