Could the Budget help turn Generation Z into generation debt?

Chancellor Rachel Reeves is expected to justify the tax rise in her upcoming budget as a key measure to keep the UK’s national debt under control.

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

Generation Z, or those born between 1997 and 2012, have had their wallets hit by benefit cuts and dramatic increases in university tuition fees over the past 15 years. Meanwhile, home ownership rates for people born since the 1990s are significantly lower than previous generations, in part because they have faced relative difficulty climbing the housing ladder.

However, most politicians, including the Chancellor, are also committed to continuing payments thanks to the triple lock on the state pension, which guarantees that it rises by the highest of average wages, inflation or 2.5% each year.

There is growing concern that current tax and spending policies help pensioners 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 the young generation? Or could it help impose higher taxes and more debt on them?

The BBC is monitoring verified figures.

The UK national debt is currently slightly less than 100% of UK GDP, which 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), has warned that it could rise by more than 250% over the next 50 years if taxes are not raised or public spending is reduced.

Some economists are skeptical that such rapid and sustained debt growth will actually happen, arguing that it would lead to a bond market crisis long before it would occur and the UK government’s borrowing costs would reach peak levels charged by private investors, which in turn would force changes to tax policy or spending.

Yet the OBR says its long-term projection is intended to highlight that the UK’s public finances are currently on an “unsustainable” trajectory.

The biggest driver of rising long-term spending, and therefore increasing national debt according to the OBR, is our aging population, meaning the government needs to spend more money on the NHS, social care and state pensions every year.

The number of people over the age of 65 is projected to increase from 13 million to 22 million over the next five decades. This would cause the old-age dependency ratio – the proportion of older people aged over 65 compared to people aged 16 to 64 – to increase from around 30% today to around 50% by 2070.

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

Nevertheless, the national debt is still likely to increase significantly from today’s levels due to these aging spending pressures.

Since 2010, government policy on benefits has been to help older generations and take money away from younger generations.

Over the past 15 years, people over 65 have gained an average of £900 a year extra, while under 65s have lost an average of £1,400 a year, according to calculations by the Resolution Foundation think tank.

The driving force behind this is the value of the state pension has been rising faster than the average wage since 2010 due to the triple lock, along with government cuts to working-age benefits including housing benefit, unemployment benefits and universal credit.

The OBR estimates that the triple lock will continue to drive state pension spending higher in the coming decades.

According to the OBR, if the state pension were only linked to increases in average wages its share of GDP would rise from 5% today to 6% in 2070. But instead it is estimated that the cost of the triple lock will increase government spending on state pensions by around 8% over the next 45 years.

It may be just two extra percentage points, but it is equivalent to about £60 billion in today’s money, and it will be those of lower working age who will have to pay for it through their taxes.

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

For example, if higher-value homes face additional taxes, it will affect older people more because they tend to have more property assets.

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

And the increase in employer National Insurance contributions introduced by Rachel Reeves in her first budget in October 2024 is believed to have hit young people harder, slowing job recruitment rates.

All taxpayers have a common interest in bringing the debt burden under control as a share of the size of the economy. However one reason for government borrowing is to pay for investments in infrastructure such as roads and housing. Some economists have warned that if ministers reduced such spending and borrowing due to concerns about the national debt it could prove counterproductive and ultimately harmful to young people.

As for the triple lock, younger people may benefit from its continuation when they eventually retire themselves – and polling shows that 18-49 year olds are largely in favor of maintaining the policy.

Yet, in the context of the last 15 years, many economists argue that young people are also interested in seeing a rebalancing of the treatment of older and younger generations through the tax and benefits system.