Could the Budget help turn Generation Z into generation debt?

Chancellor Rachel Reeves’ upcoming Budget is expected to justify tax increases as a vital measure to keep the UK’s national debt in check.

Some have argued that keeping the national debt low protects the financial interests of young people. This is because if the country’s debt increases significantly, young people will be the ones who will have to foot the bill to pay the interest on it. And it would be taken directly from payrolls through higher taxes.

Generation Z, or those born between 1997 and 2012, has been hurt by welfare cuts and dramatic increases in university tuition fees over the past 15 years. Meanwhile, the homeownership rate for those born since the 1990s is well below that of previous generations due to the relative difficulties they face climbing the housing ladder.

But most politicians, including the chancellor, are also adamant on this issue. keep paying for the triple lock on state pensionThis guarantees that average salaries will increase every year by the highest rate of inflation, or 2.5 percent.

There are growing concerns that current tax and spending policies help retirees but are unfair to younger generations, and that the triple lock in particular will increase public spending and the national debt in the long term.

So will this budget really help younger generations? Or could it help them impose higher taxes and more debt?

BBC Verify looks at the figures.

The UK’s national debt is currently just under 100% of UK GDP; this is the value of all goods and services produced by the economy in a year.

The government’s official forecaster, the Office for Budget Responsibility (OBR), He warned that it could rise above 250 percent in the next 50 years. unless taxes are increased or public spending is reduced.

Some economists doubt that such a steep and sustained debt rise will actually happen, arguing that it would likely trigger a bond market crisis long before that, with the UK government’s borrowing costs pushed to extreme levels by private investors, instead prompting a change in tax policy or spending.

But the OBR says the aim of its long-term forecast is to highlight that Britain’s public finances are currently on what it calls an “unsustainable” path.

According to the OBR, the biggest driver of rising long-term spending and therefore the national debt is our aging population; This means the government must spend more money each year on the NHS, social care and state pensions.

The number of people over the age of 65 is expected to increase from 13 million to 22 million in the next fifty years. This would increase the elderly dependency ratio (the ratio of older people over 65 to people aged 16 to 64) from around 30 percent today to almost 50 percent by 2070.

Today the state pension age is 66, but for those born after 1990 it is likely to be raised higher to enable people to work longer and reduce the old-age dependency ratio.

Even so, the national debt is likely to increase significantly from today’s level due to spending pressures in old age.

Since 2010 the government’s policy on benefits has tended to help older generations and take money from younger generations.

Over the last 15 years, people over 65 have gained an average of £900 extra a year, while those under 65 have lost an average of £1,400 a year. Calculations made by the Çözüm Foundation think tank.

The driving force behind this has been that the value of the state pension has increased faster than average wages since 2010 due to the triple lock. government cuts working age benefitsIncluding housing benefits, unemployment benefits and universal credit.

OBR predicts triple lock The state will continue to increase pension expenditures in the coming years.

If state pensions depended solely on growth in average wages, their share of GDP would rise from 5% today to just 6% in 2070, according to the OBR. But instead, the cost of the triple lock is projected to increase government spending on state pensions by almost 8 percent over the next 45 years.

This may only be an extra two percentage points, but it equates to around £60bn in today’s money, and it will be young working-age people who will have to pay for it through taxes.

The impact on different age groups will depend on which taxes are increased and which benefits are protected.

For example, if high-value homes face extra taxes, seniors with more property wealth are hit harder.

When you look at earnings, pensioners still have to pay income tax, but they are no longer subject to employees’ National Insurance.

And Young people are thought to be more affected The increase in employer National Insurance contributions that Rachel Reeves introduced in her first budget in October 2024 appears to have slowed recruitment rates.

It is in the common interest of all taxpayers to see the debt burden under control as a ratio of the size of the economy. One of the reasons the government borrows is to pay for infrastructure investments such as roads and housing. Some economists say it could be counterproductive if ministers reduce such spending and borrowing due to national debt concerns. ultimately harms young people.

As for the triple lock, young people can benefit from its continuation when they retire and polls show 18-49 year olds are generally in favor to continue the policy.

However, in the context of the last 15 years, many economists argue that rebalancing the treatment of older and younger generations through the tax and welfare system is also in the interests of young people.