The rising cost of government borrowing and an expanding public debt are raising concerns about the economic prospects of younger generations in the United Kingdom. Recent developments in government bond yields have underscored the challenges facing policymakers, with implications expected to surface prominently in Chancellor John Healey’s upcoming budget.
Economic growth in the UK has slowed significantly over the past two decades. Real GDP per capita has increased by just 8 percent in the last 18 years, a stark contrast to the 43 percent growth recorded in the preceding 18-year period. This deceleration has coincided with a decline in the economic outlook for younger people, with polls indicating that more young adults now expect to be worse off financially than their parents.
Beyond sluggish growth, younger generations are grappling with elevated debt levels and related fiscal pressures. Government debt has more than doubled over the past 12 years, reaching nearly £3 trillion in nominal terms. Although debt as a share of GDP has recently stabilized, analysts warn this may only be a temporary pause. Projections from the Institute for Public Policy Research (IPPR) estimate that over the next 50 years, interest payments on government debt could rise from 9 percent to 21 percent of government revenue, with a worst-case scenario reaching 47 percent.
The rising fiscal burden is largely attributed to an aging population, which is expected to drive approximately 80 percent of the UK’s increasing public spending in coming decades. The IPPR has advocated for a restructuring of the fiscal framework to shift tax burdens away from younger workers and towards property owners, wealth holders, and older citizens.
Pensions remain a significant component of these fiscal challenges. The introduction of the "triple lock" mechanism for state pensions—guaranteeing increases based on inflation, average earnings, or a minimum rate—has contributed to a nearly 30 percent real-term rise in pension costs per working-age taxpayer since its inception 15 years ago. Critics argue that the triple lock is financially unsustainable and intergenerationally unfair. Reform proposals include temporarily capping pension increases to inflation alone until 2030-31, before resuming a combined inflation and earnings growth approach. Such adjustments could yield substantial savings, potentially reaching £38 billion annually by the mid-2040s, some of which could be redirected to support the poorest pensioners.
The Intergenerational Foundation, a think tank focused on generational equity, highlights misconceptions among older populations regarding pensions, noting that the state pension system operates on a pay-as-you-go basis rather than a funded model. The foundation also points to the comparatively low poverty rates among pensioners versus other demographics.
In addition to state pensions, the foundation calls for structural reforms of public sector pension schemes. It recommends transitioning from defined-benefit to defined-contribution models, similar to reforms enacted in Australia and the Netherlands. Such a shift would align public pensions with private-sector norms but entails complex challenges, including managing existing pension commitments while establishing a sustainable system for future workers.
Ultimately, the confluence of slow economic growth, rising government debt, and escalating pension obligations has set the stage for potential intergenerational financial strain. Without significant policy changes, younger generations may face diminished economic prospects relative to their predecessors, raising difficult questions about the long-term sustainability of the UK’s public finances and social support systems.