Jean Monnet Professor & Professorial Fellow (Politics)

Alan Mayhew

The economic analysis of the impact of Britain leaving the EU on the British economy was well documented before the EU referendum by the IMF, the OECD, the Bank of England and many other independent institutions.  The precise magnitude of these effects will be determined partly by the outcome of negotiations with the EU and of course by the development of the world economy in the coming years but the overall impact in the short and medium term will be negative for GDP and for employment.

This impact will not fall equally on the regions of the United Kingdom nor on the different age groups in society.  The question of intergenerational equity in economic developments over recent decades has gradually risen up the political agenda but this has not been reflected in government policy.  The fact that older age groups have far higher voter participation rates than younger groups has meant that government policy has been biased towards keeping older groups happy.

Current policy offers pensioners the ‘triple lock’ on their pensions, free bus passes, energy payment supplements in winter and relatively favourable tax treatment.  But for well-off pensioners the advantages of rapidly rising house prices, relatively reliable private pension systems, and a free National Health System with services frequently staffed with hard-working qualified immigrants are far more significant.  The young on the other hand, without the benefit of years of capital accumulation, many of them saddled with large student debt, and faced with costs far outpacing salary rises (housing, childcare) and often denied a good education or apprenticeship have suffered relatively to older age groups.  Many have been forced to accept poor quality jobs with very precarious contracts.  There is little prospect of the young receiving pensions which come anywhere close to pensions received by middle-class pensioners today and home ownership in the future will often be limited to those with well-off parents.

The decision to leave the European Union will undoubtedly hurt the interests of the young while changing little in the lives of comfortably off older age groups.  Almost 70% of the under 34 voters in the EU referendum voted to remain in the EU while 60% of the over 65s voted to leave. In the short term lower GDP growth leading to lower-than-expected government revenues and the need to tackle the very serious current account deficit will mean higher taxes and/or further cuts in government expenditure.  The Brexit-induced recession will be worsened by a marked decline in foreign direct investment as companies fear that they will not have access to the European single market. The Bank of England will use the limited scope it has in monetary policy to support economic activity (but financing the current account deficit may require higher rates eventually) but this may work against the young by underpinning house price inflation while not necessarily stimulating housing construction.

For the young in society this is bad news. They will be hit by further government cuts, still unaffordable housing costs and deteriorating employment opportunities.  But the really bad news is that Britain has become a country with fewer opportunities for young people.  Will they in future be able to work abroad, will travel abroad become far more difficult, with declining foreign investment will many job opportunities disappear and will fewer young people from abroad come to work and study in the UK leading to a much diminished country.

The post-Brexit government needs to ensure that the intergenerational policy imbalances are rectified and, in the negotiations with the EU, that the interests of the young in working abroad and working in the UK with young people from other countries are defended.