Could the Budget help turn Gen Z into generation debt?

Chancellor Rachel Reeves’ upcoming budget is expected to justify tax rises as a vital measure to keep the UK’s national debt under control.

Some have argued that keeping the national debt low protects the financial interests of younger people. This is because if the country’s debt were to increase drastically, it would be the young people who would have to foot the bill to pay the interest. And it would come directly from their payrolls through higher taxes.

Generation Z, or those born between 1997 and 2012, have been hit over the past 15 years by benefit cuts and dramatic increases in college tuition rates. Meanwhile, the homeownership rate of those born since the 1990s is well below that of previous generations, due to the relative difficulty they have faced in climbing the property ladder.

However, most politicians, including the chancellor, also pledge to continue paying the state pension triple lock, which guarantees it will rise each year by the highest average salary – inflation or 2.5%.

There is growing concern that current tax and spending policies help pensioners but are unfair to younger generations, and that the triple lock in particular will boost public spending and the national debt in the long term.

So will this budget really help the younger generations? Or could it help them shoulder higher taxes and more debt?

BBC Verify has been crunching the numbers.

The UK’s national debt currently stands at just under 100% of UK GDP, which is the value of all goods and services produced by the economy in a year.

The government’s official forecaster, the Office for Budget Responsibility (OBR), has warned that it could exceed 250% over the next 50 years unless taxes are increased or public spending is reduced.

Some economists doubt that such a sharp and sustained rise in debt would actually materialise, arguing that it would likely trigger a bond market crisis much sooner and cause the UK government’s borrowing costs to be driven to extreme levels by private investors, which would instead force a change in fiscal policy or spending.

However, the OBR says the purpose of its long-term projection is to highlight that the UK’s public finances are currently on what it calls an “unsustainable” trajectory.

The biggest driver of rising long-term spending, and therefore rising national debt according to the OBR, is our aging population, which means the government needs to spend more money each year on the NHS, social care and state pensions.

The number of people over the age of 65 is expected to increase from 13 million to 22 million over the next five decades. That would increase the elderly dependency ratio (the ratio of people over 65 years old relative to people aged 16 to 64) from around 30% today to almost 50% in 2070.

Today, the state pension age is 66, but for people born after 1990 it is likely to be raised to keep people working longer and reduce the old-age dependency ratio.

Even so, the national debt would likely increase significantly from the current level due to these pressures on old-age spending.

Since 2010, government benefits policy has tended to help older generations and take money away from younger generations.

Over the past 15 years, people over 65 have received an average of £900 extra a year, while those under 65 have lost an average of £1,400 a year, according to calculations by the Resolution Foundation think tank.

The driving force behind this has been the value of the state pension which has risen faster than average wages since 2010 due to the triple lockdown, along with government cuts to benefits for people of working age, including housing benefits, unemployment benefits and universal credit.

The OBR projects that the triple lock will continue to further drive up state pension spending in the coming decades.

If the state pension were solely linked to increases in average wages, then its share of GDP would only rise from 5% today to 6% in 2070, according to the OBR. But it instead projects that the cost of the triple lock will push government spending on state pensions to almost 8% over the next 45 years.

That might only be an extra two percentage points, but it amounts to around £60 billion in today’s money, and it would be younger working-age people who would have to pay for it through their taxes.

The impact on different age groups will depend on what taxes increase and what benefits are protected.

For example, if high-value homes were to face additional taxes, it would affect older people more, as they tend to have greater property wealth.

If you look at income, pensioners still have to pay income tax, but they are no longer subject to employee National Insurance.

And younger people are seen as having been hardest hit by the increase in employer contributions to National Insurance that Rachel Reeves introduced in her first budget in October 2024, which appears to have slowed job hiring rates.

All taxpayers have a shared interest in getting the debt burden under control as a proportion of the size of the economy. Although one of the reasons the government goes into debt is to pay for investments in infrastructure such as roads and housing. Some economists warn that if ministers were to reduce that kind of spending and borrowing out of concern about the national debt, it could prove counterproductive and ultimately detrimental to younger people.

As for the triple lock, young people could benefit from its continuation when they eventually retire, and polls show that people between 18 and 49 years old are broadly in favor of maintaining the policy.

However, in the context of the last 15 years, many economists argue that younger people also have an interest in rebalancing the treatment of older and younger generations through the tax and benefits system.