Britain’s cost-of-living crisis is worsening, with sticky inflation, rising bills, and rapid interest rate hikes creating a challenging environment for its youngest workers. The country’s adult Zoomers, in their early twenties, are facing a toxic combination of high housing costs, limited job prospects, and heavy student debt. These factors not only hinder their economic progress but also threaten the future prosperity of the nation, which is in desperate need of filling job vacancies. With anemic growth and little improvement in living standards, the situation looks bleak.
Productivity growth has stalled, and workers are grappling with long-term health issues, exacerbating the challenges faced by younger generations. The UK government is also dealing with strikes by public sector workers demanding better pay and working conditions. A poll conducted by the British Medical Association revealed that one in three National Health Service junior doctors planned to move abroad for better opportunities. Sophie Hale, principal economist at the Resolution Foundation, highlights the importance of productivity growth for real wage growth and improved living standards. The combination of high inequality and slow growth particularly affects lower- and middle-income households, causing a significant decline in relative living standards over the past decade and a half.
While the UK has managed to avoid a recession thus far, there are concerns about potential layoffs. Job postings have decreased by almost a quarter in the three months leading up to June compared to the previous year, indicating a possible downturn. A university education, once seen as a pathway to higher earnings, no longer guarantees a boost in pay. Analysis of advertised graduate roles shows that average salary growth has declined alongside rising prices, resulting in real-term pay cuts for these workers. Prime Minister Rishi Sunak and Bank of England Governor Andrew Bailey have called for wage restraint to prevent fueling inflation. Additionally, the country’s tax burden is at its highest since World War II, pushing more workers into higher tax brackets as thresholds remain frozen. This has led to a decline in disposable income per head for British households in five out of the last six quarters.
The situation is particularly challenging for recent graduates who lack savings to fall back on. This is evident in the fact that over 10% of newly enrolled employees are opting out of making pension contributions. Household income growth has been uneven over the years, with a significant increase between 1961 and early 2020, followed by minimal growth in the 15 years before the COVID-19 pandemic. The weakest economic growth since the inter-war period has also been observed during this period. In comparison to other European countries, the UK has experienced a 2% decrease in spending power between 2007 and 2018, while Germany and France saw increases of 27% and 34%, respectively.
The COVID-19 pandemic has disrupted university education, making it difficult to assess its impact. However, the growing student debt among recent graduates is a tangible concern. The average forecasted debt for students in England starting their course in the 2022-23 academic year is £45,600, compared to £15,000 for those who began in 2006-07. OECD analysis shows that the debt carried by English university students is high compared to international standards. Repayment rates for student loans increase annually in line with retail price inflation. Graduates are required to pay 9% of their salary above £27,295 towards their debt, which is forgiven after 30 years of repayment. While this elevated rate may have limited impact for some, it prolongs the debt burden for others.
Owning a home is increasingly out of reach for the youngest working generation due to soaring house prices and limited housing stock. First-time homebuyers are spending an average of 5.5 times their annual salary on a house, rising to 8.9 for London properties. Many Britons rely on financial support from their parents, known as the “Bank of Mum and Dad,” to afford their first property. Those fortunate enough to receive this assistance end up with a larger deposit and a smaller loan compared to their peers. Those without such support face a significant disadvantage in purchasing a home at a similar price level.
The health of workers is also a concern, with three in five reporting exhaustion by the end of the workday, according to research by the Trades Union Congress. This fatigue is detrimental to productivity, which is vital for the economy’s growth and development.
In summary, Britain’s cost-of-living crisis is hitting its youngest workers hard. They face a combination of high housing costs, limited job prospects, and heavy student debt. Productivity growth has stalled, and workers are experiencing long-term health issues. The government is grappling with strikes by public sector workers demanding better pay and working conditions. The situation is further exacerbated by a potential economic downturn and declining disposable income. Recent graduates are burdened with significant student debt, while homeownership remains a distant dream for many. The overall impact on the country’s future prosperity is concerning, and urgent measures are needed to address these challenges.