Blame austerity, not old people, for the plight of Britain's young - Will Hutton

We have to refashion our economic model so that it works for everyone – particularly the young

by Will Hutton

A man looking for a job in South Wales: 'A society that neglects its young is one that has lost its way.' Photograph: Homer W Sykes/Alamy

 

We are governed by charlatans. The scale of economic mismanagement of our country is too little understood. We connive in epic mistakes and unnecessary suffering, legitimised by a suffocating and destructive economic consensus whose analytic underpinnings are in shreds – and known to be in shreds. Who cares for the condition of Britain or its people?

The facts are brutal. By 2018, 10 years after the financial crisis began, our GDP will be, cumulatively, 16% lower than it would have been had the crisis not broken. Only war has provoked such a discontinuity in our growth performance in modern times. This is imposing incredible and growing hardship on everybody, except for a few. Average incomes have fallen by 7% from their peak. You can see the effects in any high street. It's a world where good jobs are scarce, half a million rely on food banks, zero-hour contracts mushroom and the future is dark.

The young are at the centre of this maelstrom. Between 2008 and 2012, the Institute of Fiscal Studies reports that average incomes for people in their 20s fell by 12% – the largest of any group. The reason is not hard to find: there has been a collapse in demand for their labour. Firms, fearful for their own future, are not offering first "entry" jobs on any scale, let alone promoting and giving opportunity to the young they do employ. A quarter of firms offer no entry jobs at all. One in five 16- to 24-year-olds is without work.

The young know the score. Universities and further education colleges across the country report that incidences of stress are rising sharply as students know their exams are never more important, with the chances of successfully finding satisfying work so slim. A society that neglects its young on this scale, and puts such pressure on them, is one that has lost its way. In today's vengeful climate, the old are rounded on as the enemies of the young, prospering from their suffering and not taking their share of the pain. But we shouldn't be talking in terms of pain and attacking the living standards of the elderly to bring them down too.

And yet on Wednesday, George Osborne will proudly tell Parliament that the government has found the spending cuts to keep the country on course for the biggest shrinkage of the state ever overseen by any large industrialised country over eight years. Indeed, as debate rages worldwide over the rights and wrongs of austerity in the wake of the financial crisis, the IMF's Fiscal Adjustment in an Uncertain World (April 2013, Methodological Appendix, Table 3) shows that only three other countries – Iceland, Ireland and Greece – are mounting public spending cuts that are proportionately larger over the same period. No large country in the eurozone is being asked to deliver spending austerity on this scale.

It is unnecessary and counterproductive. Eurosceptic pundits warn that the eurozone is about to break up because of its internal strains without ever recognising that the strain in their own backyard is much more intense. The governor of the Bank of England intones that Britain's longest depression and slowest recovery for more than a century is in part because of the crisis in the eurozone – without acknowledging the extent of British state-led austerity.

The austerity and the miserable life chances for our young represent a choice. Table 12a in the same IMF paper shows that Britain's fiscal position, when taken in the round, is comfortingly sound. Long-term health and pension expenditure is firmly under control. Total financing needs – the combination of meeting the public deficit in any financial year together with refinancing government debt that matures every year – are running at 13% of GDP, roughly half the average of the Group of Seven. Government debt is very long term: at more than 14 years, it is the longest of any advanced industrialised country. Better still, only 30% is held by non-residents compared with an average of more than 50% for other advanced countries, so the debt is more grounded in British ownership.

Together, this means we have the best protected public debt position of any country in the world top 30, the least likely to suffer any speculative attack. We do not have to rival the Greeks in a crash austerity programme. All the stuff about tough but necessary hard choices, not passing on too much debt to the next generation, is hogwash. It is a highly selective marshalling of facts to support an ideological crusade against the state.

The starting point should, instead, be redesigning our capitalism so that it serves our people, particularly the young. We could gradually reconfigure the state and social settlement around the sustainable tax revenues that a new progressive capitalism generates from a much broader tax base – drawing more from property and multinational companies. And, on top, inflation of 3% or 4% would not be the end of the world. No sane policy-maker would make deficit reduction the sole aim of economic policy, or indiscriminate spending cuts the chief means of achieving it, whatever the economic conditions – more so given the soundness of the overall fiscal position. This is insanity.

Two very good new books – Progressive Capitalism by David Sainsbury and The Entrepreneurial State by Mariana Mazzucato – complement each other in setting out an entirely new framework in which to get British capitalism to perform. Sainsbury focuses on the two heartland areas – finance and the knowledge infrastructure – that are in desperate need of reform and urges an enabling state to do just that. Mazzucato's argument is that history's lesson is irrefutable: only with state support do innovators take big risks.

This, then, becomes a world with a future – and a world with a future wants to enlist the young to its cause. One quick win would be to bring back the successful future jobs fund cancelled by the coalition; for a mere £6,500 subsidy per job, it created 105,000 for unemployed youngsters within the 18 months to March 2011. But society's benefit was £7,750 per person, estimated the Department of Work and Pensions. I would buttress this with a massive mobilisation of funding for proper apprenticeships – and also a house-building programme to offer our young somewhere affordable to live.

Instead, we occupy an universe in which, beyond the top 1%, only the old seem to prosper: pensioners have seen their incomes steadily rise. But let's not speak of vengeance or generational conflict. We should be talking about building a better future, and that needs an enabling, entrepreneurial state. It is not finance or debt that stops us from having one. It is will and conviction.

Observer