The iPod generation has the most to lose in a global recession

22 October 2008

Evening Standard, Nick Cohen, 22 October 2008

The global recession will hit everyone but not equally. The extent of the pain will depend on how much debt you are in. Too many of today's young Londoners are members of what the think-tank Reform calls the "iPod generation" "Insecure, Pressured, Over-taxed and Debt-ridden" and they are looking terrifyingly vulnerable.

The household debt ratio in Britain for all ages is 169 per cent: for every £1 of disposable income coming in, the average household had £1.69 of debt to service. Even the Americans, whom Gordon Brown is so keen to blame for all our troubles, do better than that.

Last August, consumer debts in the form of mortgages, loans and credit card bills overtook the entire gross domestic product of the country. To put it another way, the British owed more than the output of every office, factory, farm, quarry, fishery and mine in the land.

Averages conceal as much as they reveal. The think-tanks are right to worry about the young in particular because they are carrying so much of the burden.

I recently met a woman who might have stepped out of the pages of Dickens or Thackeray. She and her husband wanted an executive home and all the trimmings so they took a mortgage on 10 times their salary - from Northern Rock, naturally. They sent their children to private school, and took a business loan for their dental practice for good measure. Her husband, who is not a cautious man, as you may have gathered, then had an affair with a dental nurse. Their hopes are dying as divorce and bankruptcy beckon.

They have no one to blame but themselves but I cannot overemphasise how much trouble responsible young people may be in. The property bubble was a transfer of wealth between the generations. Pensioners who took a windfall profit sold on to young or youngish couples who saddled themselves with enormous loans. The mortgages did not look extravagant when the property market was roaring ahead and they could dream of selling on, too. After the crash, their debts have turned from investments into shackles.

Most households in France and Germany can roll with the punch of a recession because they have savings. Too many British borrowers are strung tight on debt. A wife loses her job, a husband loses his overtime, and they will snap.

Soon they will have to cope with tax rises, too. Labour has already run up government debt to levels that make Northern Rock seem like a paragon of responsibility. Alistair Darling will have to borrow more to see us through the recession. Borrowing is a tax on the future, and today's young will have to pick up more than their fair share of the bill.

I wonder what they will think when they take over the country. I cannot believe that they will have the same easy-going attitudes to debt and taxes my generation displayed.