Crisis creates threat of new lost generation

The kids are not alright. Old timers - and I suppose, since I can remember the 1980s, I am one of them - are prone to pontificating, with a touch of smugness, about how no one under 35 has the first idea about a recession. They are about to find out: as the Organisation for Economic Co-operation and Development has said recently, the position of the young deteriorates much more than that of fully fledged adults when adverse economic conditions unfold.

Children of the boom, who spent their formative years in a period of extraordinary apparent prosperity, may have thought it perfectly normal to have easy credit, plenty of jobs and an abundant supply of financial support from the Bank of Mum and Dad, but they are having rapidly to adjust to a more austere reality.

The credit crunch is the economic equivalent of the Mosquito security device - which emits a repellent high-pitched whine audible only to young ears - in that it is likely to have a particularly painful effect on the under-25s. The risk is that this youth-seeking missile, combined with pre-existing social and demographic trends, could trigger generational conflict. No wonder Gordon Brown has been worried by the unrest in Greece; he can remember the Brixton and Toxteth riots.

The downturn will be difficult for people of all ages, from pensioners receiving derisory interest on their savings to middle-aged, over-mortgaged parents. Young people, however, are particularly vulnerable because it threatens to block their path into the job market, as credit-starved companies freeze recruitment. And if delayed entry into work turns into long-term unemployment, as it did for many in the 1980s, it can blight lives for years, pushing some to the margins of society and leaving them vulnerable to a cluster of social and health problems.

Despite Gordon Brown's preoccupation with youth employment and Tony Blair's mantra of "education, education, education" the UK is entering this recession from a poor position. Middle-class youngsters will be affected; for the first time in years, graduates face worries about finding work when they leave university. Insouciance about student debts, which averaged £12,000 for the class of 2007, will be harder to sustain, and all but the richest parents will be less eager to help now the family home no longer doubles as a piggy bank.

The deeper worry, however, is that the ranks of the "Neets" - young people "not in education, employment or training" - will be swelled by the crunch, with heavy social, economic and personal costs. A recent report by the OECD found that more than 14 per cent of 16-to-24-year-olds in the UK are unemployed - more than double the proportion in the working population as a whole - and that the prospects for this age group have worsened at a time when the average OECD unemployment rate has been falling . Separate research by the CBI suggests that young people outside formal education and training are significantly more likely to suffer poor health, to become involved with crime, and, in the case of young women, to become teenage mothers. These problems, left unchecked, will replicate in future generations and lead to clusters of deprivation where worklessness is entrenched. It is no surprise that the highest proportion of Neets in the English regions is in the north east; many of them will be the children of the teenagers shunted on to the dole queues in the Thatcher era.

All sorts of reasons have been proffered as to why the Neet problem remained intractable even in the boom years, from the arrival of migrant workers to the alleged failings of the education system, but the key thing now is to stop the situation getting even worse. The government is beefing up its commitment to apprenticeships, though burger chain McDonald's aim to become the UK's biggest provider will inevitably lead to jibes about McJobs.

But employers can't provide apprenticeships if they go out of business, so the suggestion by shadow universities secretary David Willetts of a clearing house to provide apprenticeships for young people whose employers have gone bust is a sensible one. Bringing forward plans to raise the school leaving age would also help; there is a good argument that all 16-to-18-year-olds should still be in education or training.

Of course, this will cost money, but so will neglecting the problem. We will be relying on young people, as future taxpayers, to foot the bill for rescuing the UK economy from the credit crunch, a crisis they played no part in creating. They are the ones who will be driving forward the new green-tech industries we hope will provide future prosperity and a cleaner planet. And as the population ages, we will be looking to them to support a much heavier pensions and elder-care burden - though, unlike their parents or grandparents, today's twentysomethings are highly unlikely to enjoy a decent final salary scheme when they eventually retire.

Older generations always have a responsibility to the young, but the credit crunch has made ours a pressing one - particularly towards the disadvantaged teenagers prosperity forgot.

Time to get credit flowing again
Some readers have taken me to task over my new year message on the UK economy, saying I am too gloomy. Normally, I hate being wrong; in this case I'd be happy to be mistaken, but I don't think so.

Since I wrote, the chancellor has all but conceded he was too optimistic in his suggestion in the pre-budget report that the UK economy would pick up in the second half of this year, and the governor of the Bank of England has admitted that despite the lowest nominal interest rates for 300 years - they have been lower in real terms - more must be done to induce the banks to start lending again.

Proposals to increase the flow of bank lending to businesses and customers are urgently needed, and might come this week. One idea gaining traction in the markets is of a "good bank, bad bank" model; the idea is to quarantine the toxic bits to liberate smaller, healthier institutions, which can then start lending. The idea has worked in the past, in the rescue of Lloyd's of London, for example, but it is politically difficult and may not happen - some bankers fear piecemeal and ineffective measures instead. There are other options, such as adopting proposals by Sir James Crosby for the government to guarantee securities backed by mortgage or small business loans, or full-scale nationalisation of banks, with Royal Bank of Scotland mentioned as a prime contender.

We can't afford to get this wrong. The banks are due to start reporting their full-year figures for 2008 from next month, and the write-offs are likely to be grim. Recapitalisations worked in so far as they staved off disaster, but if credit is not flowing to creditworthy companies and individuals, the economy will stay on its knees.

By Ruth Sunderland
The Observer