Why Rishi Sunak's Budget Needs To Help Struggling Young People Recover From The Impact Of Covid
Younger age groups may be less vulnerable to the physical effects of Covid-19, but they have taken the brunt of the economic impact of the pandemic, and its reverberations could be felt in earnings for years to come.
The impact of disruption to work and education, which disproportionately affects young people, looks likely to continue for some time yet, which is why there is pressure on Rishi Sunak to use the Budget to focus the recovery on helping them bounce back from the effects of the pandemic.
Figures show more than half the drop in the number of employees has been among the under-25s, and more than four in five job losses have been amongst those under 35.
Conversely the Office for National Statistics revealed that as well as those aged 50 to 64 not being as badly affected by job losses, 2,000 more people in that age group are employed now than they were a year ago.
But it is not just the impact of coronavirus taking its toll on jobs for young people. The Institute for Fiscal Studies reports that over the last decade, young people starting out in the labour market were already “increasingly working in occupations that are relatively low-paid”.
Many of these roles are in sectors hardest hit by the Covid-19 crisis, such as hospitality and non-food retail, meaning the pandemic has dealt a new blow to an already challenging labour market.
“In 2007 around 19% of all people aged between 22 and 25 working in their first full-time job after leaving education were employed in sectors that were essentially shut down during lockdown, while by 2019 this had increased to 22%,” the IFS said.
"By contrast, the share of all employees working in shut-down sectors had fallen slightly from 17% in 2007 to 16% in 2019.”
The think tank concluded that the pandemic has “severely dented the career prospects of young people and threatens to have a prolonged negative economic impact on them as a result”.Last year Sunak introduced the kickstart fund, which pays employers £1,500 for every 16-24 year old they train, but there are now calls for expanded training and support to help improve the recovery.
The IFS has also looked at the impact of schooling on an individuals’ subsequent earnings, concluding it increases by 8% per year, on average, across advanced and high-income countries.
Many children will have missed at least half a year of normal schooling due to the pandemic, and they suggest the lifetime costs of this "could be very large indeed”.
The think tank said: “Imagine someone earning £1 million over their working life (not far off the likely average in the UK). For this person, losing half a year of schooling will mean losing £40,000 in income over their lifetime.
“This equates to an astronomical £350 billion in lost lifetime earnings across the 8.7 million school children in the UK.”
The IFS warns that this in turn will have a long-term impact on money collected by the treasury.
"If 30-40% of future lifetime earnings ends up as taxes, then lost earnings of £350billion would mean over £100billion less tax revenue over the long-run to spend on public services or paying down the debts we are currently accumulating," the analysis continued.
“The inescapable conclusion is that the lost schooling represents a gigantic long-term risk for future prosperity, the public finances, the future path of inequality and well-being.”Beyond school, graduates are also suffering as a result of the pandemic, with the Institute of Student Employers revealing that many roles have been deferred or job offers rescinded in the past year.
Their Student Recruitment Survey for 2020 reported the largest fall in graduate recruitment since the global financial crisis in 2008/9, and predicted a further decline this year as well.
Recent analysis by the New Statesman shows a graduate earning over £26,575 pays an effective tax rate of 41% when income tax, National Insurance and repayment of student loans are added together. Meanwhile a non-graduate pays 32%.
A graduate earning more than £50,000 pays an effective rate of 51% in tax rate, whereas a non-graduate earning £100,000 pays 42%.
There are also calls to refer the rate at which interest is calculated on student loans, which can be as high as 5.6%, while interest on government debt is close to 0% currently.
Sunak is not expected to cancel all student debt when he opens his red box, but similarly bold measures to help the young are reportedly being discussed.
There are suggestions the UK plumps for a US-style economic stimulus, but only for those aged between 18 and 30.
Handing them a lump sum of anywhere between £1,000 and £5,000 is being argued on the grounds they have been most impacted by pandemic job losses but are likely to be the drivers of the economy once it is opened up.It is the kind of brute force policy Sunak has been willing to take on since he took the reins at Number 11 at the start of the crisis, but its lack of means testing will anger some, and could only fuel an already building sense of intergenerational warfare.
For the young though, it may seem reasonable given the Tories are sticking to the pensions triple lock, despite claims it is unfair on working age people.
The Chancellor is instead said to be plotting a “stealth rise” in income tax by freezing the point at which people start paying the basic rate at £12,500, which due to inflation will bring more employees into the tax base over the coming years.
This has upset some of his own MPs, including former chancellor Philip Hammond, who say it is effectively breaking the Tory manifesto promise not to raise income tax without technically raising it.
Some have argued it will only worsen the cost of living crisis for the young created by low wages and high rents, and the difficulty in getting on the housing ladder.
The government is attempting to tackle the latter issue with a Stamp Duty holiday and new 95% mortgages, but recent data shows house prices are increasing at their fastest rate in six years, despite the pandemic, fuelling criticism the money would have been better encouraging more housebuilding rather than priming the market and benefiting those who already own property.
It is hard for young people to save even for a 5% deposit, and the historically low interest rates mean they get little reward for trying to, prompting calls for more help for renters in the Budget too.