How will younger people ask for compensation after lockdown? | AAG Wealth Management

How will younger people ask for compensation after lockdown?

Posted: August 17, 2020

Younger generations will soon ask to be repaid after bearing the heavy economic costs of COVID-19 lockdowns, says Michael Collins, Investment Specialist at Magellan.

Captain Sir Tom Moore (“Captain Tom”) is probably Britain’s favourite centenarian.
After walking 100 laps of his garden for charity, the veteran raised almost £33 million for the NHS, won a knighthood from the Queen, and received 150,000 cards for his birthday in April.
But older people in general may soon be asked to do more to compensate younger generations for the economic impact of COVID-19.
Younger workers have been hit harder than older ones, especially when it comes to jobs, as people who graduate during recessions are usually handicapped for years as they struggle to find appropriate work.
And more young people than old work in industries such as tourism, hospitality and leisure, which have been the hardest hit by restrictions to slow infection rates.
Plus, when companies make redundancies it’s often the young who go first, because they are generally the cheapest to lay off, know less about the companies they work in, and are the least skilled.
So, even though the COVID-19 virus is most dangerous for older people who catch it, the young may feel more hard done by when it comes to its economic impact.
Policy struggles
When you add to this to the fact that it’s mostly younger people who will have to repay the UK’s huge debt burden, how might this stir younger generations to ask for payback?
This emerging struggle is based on the idea of ‘intergenerational equity’ – a idea that says each generation should be fair to future generations. In financial terms, that means each generation should leave behind an economy that works, as well as manageable levels of public debt.
In this context, here are some areas where we might soon see younger generations asking for compensation.
There are four key points:
  1. The pivotal showdown will be over how to reduce government debt. The young will push governments to prioritise growth and let inflation rise, because inflation reduces the real value of debt, allowing repayments to be made more easily. In this way it favours borrowers (the young with personal debts) over lenders (the elderly with savings). However, this option risks causing higher interest rates that would actually increase the size of debt repayments.
  2. The second clash will centre on the job-creating measures that young people are likely to support as they demand a return to the pre-COVID-19 jobs markets. Again, these solutions are likely to risk inflation and perhaps higher interest rates.
  3. The third fight will be over fiscal policy more generally – in other words, how the government raises taxes and spends money. On the revenue side, the young are generally against higher income and inheritance taxes, while favouring wealth, property, and capital-gains taxes that generally target the elderly. The spending side of this debate will feature a battle over education, job creation, care for the elderly and healthcare to name four flashpoints, where the young will fight for spending on skills and jobs.
  4. The fourth clash will be over the priority given to combating climate change. While older generations won’t necessarily oppose demands of the young to phase out fossil fuels, dealing with climate change is politically complicated. Some campaigners hope not just to reduce the use of fossil fuels, but to change the shape of the UK economy in a wider-ranging way, in what has been called a “Green New Deal”.
How these four struggles are resolved could change the course of economies in coming decades.
A political battle between generations was arguably coming anyway, because the Baby Boomers (people born from 1946-1964) were already leaving behind larger public debts. Since the financial crisis of 2008, many countries around the world have borrowed more than they used to.
But COVID-19 has accelerated this struggle by damaging the jobs market and leaving the UK with much higher levels of debt.
Ultimately, while the dividing lines around this issue are clear, the outcomes of the battle will depend on how much fight the young have in them.
If it’s anywhere near as much as the fight within Captain Tom Moore, the struggle could be a big one.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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