This briefing paper, written by Research Director, Scott Corfe, discusses the need for the economic costs of responding to the coronavirus pandemic to be shared fairly across the generations.
- The economic cost of tackling coronavirus will fall heavily on those of working age especially in terms of redundancies and lost income.
- Public sector net borrowing could rise above £200bn per year – higher than that seen in the financial crisis.
- This raises the prospect of “Austerity Round Two”, with years of tax rises and spending cuts as we emerge from the crisis.
- Unlike Austerity Round One, where the working age population bore the brunt of cuts in spending, especially via the welfare budget, the fiscal costs of this crisis must be fair across all age groups. The working age population face enormous financial losses in the current crisis, in a lockdown aimed at saving the lives of those at greatest risk, a group that is largely (but not exclusively) made up of older people.
- This current economic sacrifice is the right thing to do, not least given the social contract between generations: members of a good society look out for each other and are prepared to sacrifice some welfare for others. As we emerge from the crisis, older generations must uphold their part of the contract by bearing a fair proportion of future tax rises and welfare reforms.
- The “triple lock” ensuring substantial rises in the Basic State Pension should be replaced with a “double lock”, tying increases to earnings or inflation (whichever is higher). This could contribute £20bn to deficit reduction over the next five years. Pensions would still rise, but less quickly, reducing the fiscal burden on the working-age population.