The above headline could have easily read “Tough Times Ahead for Everyone” but it is likely that the effects of the austerity budget, and the financial deficit it aims to redress, will be felt more acutely by the younger generations and these effects are likely to last for many years.
With inflation out pacing wage growth, tax credits being withdrawn, child benefit frozen and the Child Trust Fund abolished, families are becoming progressively worse off. Undoubtedly the elderly on low incomes will also be hit by higher inflation but it is worth noting that winter fuel payments, free bus passes and free TV licenses have all been retained and that the basic state pension was the only benefit to be increased.
If this was a case of short term pain for long term gain things wouldn’t be so bad but unfortunately the longer term picture looks even less rosy.
The NHS is the only major department whose Budget has been increased and it is reckoned that around 45% of total spending goes to the 16% of the population who are over 65. This is perhaps not surprising, after all, it is inevitable that people will require more medical care towards the end of their lives but this generation are taking out more than they have put in.
To redress this the state pension age has increased, and we are likely to see further increases over the coming years as the working population are forced to contribute to the welfare system for many more years.
The counter argument is that money is now passed down the generations, as increased home ownership provides the next generation with a level of inherited wealth not previously enjoyed. However, inherited wealth cannot be relied upon as increased longevity and rising long-term care costs force more people to sell or borrow against their homes.
So what can be done? The key issue to recognise is that while there may be less spare money available, saving for the longer term should not be the first victim of household budget cuts. Because of the effects of compound growth, a pound not saved now will be far more damaging to your longer-term wealth than a pound not saved in later years.