Single men getting poorer since 1970s

Stark numbers from the IFS reveal how those born in the 1980s are missing out compared with their parents, writes

THE number of single men on low incomes has doubled over the past few decades as successive governments prioritise help for pensioners and families over one-person households.

The Institute for Fiscal Studies (IFS) found a “noticeable” rise in the number of single working-age men earning low incomes since the 1970s, doubling from 13pc of the lowest earning cohort to 26pc. The number of single women on low incomes has also risen since the 1970s, but the increase has not been as pronounced.

Robert Joyce, an economist at the IFS, said earnings growth for working men had been weak “across the board”, apart from increases in the minimum wage.

“More and more men on low wages can only get parttime jobs,” he said. By contrast, the IFS said there had been “very large falls” in the share of low-income pensioners. Not only are fewer pensioners struggling, the IFS said retirees had become “increasingly likely to be found at the top of the income distribution, particularly since the mid-2000s”.

The IFS noted that single parents were also less likely to be on low incomes.

For many of those who came of age during the 1980s, it was a time of upward mobility. People who bought a house during the decade have reaped the benefits of an upward march in property prices since then, after Margaret Thatcher’s tax and regulation cuts triggered an economic boom.

But those who were born in the 1980s have faced starkly different fortunes. The UK is becoming a less socially mobile country and those born in the 1980s and the decades that followed have been the hardest hit, according to the Institute for Fiscal Studies (IFS).

The think tank says rising asset prices and a “long-term stagnation in earnings” means the “economic prospects of young generations are struggling to match, let alone exceed, those of their predecessors”.

House prices have climbed from just over £10,000 in 1977 to just under £300,000 in August, according to the Land Registry. This has pushed the dream of home ownership out of reach for many, while showering rich rewards on people who were lucky enough to buy at the right time.

The surge in prices is “upending” patterns of home ownership: those who aren’t yet on the ladder face waiting until they are in their 40s or later to get their first property, as earnings stagnate and higher interest rates push up monthly payments.

The findings suggest the longstanding trend of children being better off than their parents has ended, with potentially far reaching consequences.

What has broken the intergenerational wealth contract? Low interest rates and weak productivity growth, according to the IFS.

Low rates have pumped up house prices; weak productivity growth, which has failed to regain pre-crisis rates of expansion, means earnings have been unable to keep up with rapidly climbing asset prices.

Regular pay packets are no bigger now than they were before the financial crisis after accounting for soaring inflation, according to the Office for National Statistics (ONS).

“This means that those born in the 1980s have been hit by the double whammy of weak earnings growth and falling or low interest rates that have caused a surge in the value of wealth that has principally accrued to those in previous generations,” the IFS says.

Data stretching back to 1968 show baby boomers – those born between 1946 and 1964 – have reaped the biggest gains from rising house prices.

Around half of those born in the 1960s owned a home by the time they were 25 years old. For those born in the 1970s, the figure is just under 45pc. However, less than a quarter of those born in the 1980s owned a home by the time they were 25, according to the IFS.

Rates of home ownership lag behind previous generations even among older millennials. Around half own by the age of 35. This compares with 70pc for those born in the 1950s.

The average age of a first-time buyer in the 1990s was 26 years old. Today, it’s 32, according to Lloyds Banking

Group. A typical first-time buyer now needs a bigger deposit or a much larger pay packet to get on the housing ladder.

“The huge growth in house prices since the mid-1990s has upended patterns of home ownership,” the IFS warns. “With today’s young people far less likely to own their own homes than their parents were, those born in the 1980s are on a track that will give them lower rates of home ownership than all birth cohorts since the 1930s.”

Low interest rates have helped pump up property prices as investors seek returns but they have also made it harder for first-time buyers to save for a deposit. “The rate of return on any savings has been so low for so long that it’s been next to impossible for young generations to put away the money that will bring them the returns that previous generations would have enjoyed,” says Robert Joyce, an economist at the IFS and one of the report’s authors. “So it’s just much, much harder to save your way up the wealth distribution than it was.”

This threatens to calcify existing wealth and makes social mobility a rarity. Joyce says there is “no sign” of these trends reversing, as rising interest rates now make it even harder for young people to make monthly mortgage payments.

“I do think it’s becoming increasingly likely that home ownership rates among people born in the 1980s will just be permanently quite a bit lower than home ownership rates of their predecessors.”

Stagnating wages and a growing wealth gap means more people are relying on inheritance to amass their fortunes. “Inheritances will, in time, transfer some of the wealth to today’s younger cohorts, but increased longevity means that this won’t happen until very late in life,” the IFS says.

New wealth taxes could help to redress the generational wealth imbalance, says Joyce, but reforms to the current system would be better. He highlights that council tax bands in England are still based on values from April 1991 – almost 30 years ago.

“There needs to be a recognition that we do under-tax high value homes,” he says, adding that the current system is like “having a lower rate of VAT on a Ferrari than on a Mini”.

Without action, the problems will not only persist for future generations but risk getting worse. The IFS said shutting down the economy during the pandemic had “very large impacts” on children’s education that will be felt for decades. Some are struggling with speech, while knowledge not gained in the classroom will hit pay packets later.

“Lost schooling risks reducing earnings down the line,” the IFS said, while “the likelihood of young people experiencing labour market disruption was higher for the most disadvantaged”, which will deepen inequalities and reduce social mobility.

The research ends on a sombre note: “This all leads to a remarkably uncertain time for the state of the economy and household living standards, but this is clearly a different direction from that of recent decades and perhaps the start of a new phase in inequality.”

‘Half of those born in the 1960s owned a home by the time they were 25 years old’

‘There needs to be a recognition that we do under-tax high value homes’