We used to wrestle with the problems of a society divided by class. Now we worry about divisions of culture and identity. But I believe that increasingly we are also a society divided by age.

The house price boom and the move to low inflation has had a very different impact on you if you are an old saver or a young borrower. Older homeowners have enjoyed big increases in their wealth. At the same time the mortgages that they took out in the days of high inflation now cost very little. For the younger generation it is a battle to get started on the housing ladder. But even if you do get on to what has been an extraordinary escalator, your borrowing remains expensive for years to come.

Now is a good opportunity to take stock of what has happened to the wealth of different age groups. New figures out this week from the International Longevity Centre tell the story.

If you were in your twenties ten years ago, your net assets were worth about £6,700. Now, ten years later, they are up to approximately £76,000. Much of this has been driven by those young people who managed to get started on the housing ladder and for whom house price inflation has increased their net wealth. But whereas in 1995 first-time buyers paid 12 per cent of their income in repayments, they now pay 20 per cent. And, with low inflation, their debt is not being eroded, unlike for the previous generation of baby-boomers. Moreover, at most only half the younger generation have been able to buy a house. For young people unable to buy, rents have risen to almost a quarter of their median income.

All this puts the young generation under enormous financial pressure. They may have rising incomes but they need that money to pay for expensive mortgages and high rents, not to mention their other debts. They are squeezed. What they cut back on is savings. Twentysomethings save £40 a month less than they used to and have just half as much cash in savings as ten years ago. That is why they don’t feel as well off as the Chancellor tells them they are.

The real beneficiaries of the increase in house prices are the older generation. In fact a property owner aged 75 has seen his or her wealth increase by £90,000 since reaching pension age ten years ago. This is what economists call a decumulation stage, when you should run down your wealth – but actually it is going up. However, the income of older people is barely rising and they are reluctant to borrow against the increased value of their house. They just worry about how their children and grandchildren are going to get started on the housing ladder.

So young people have to sacrifice a lot of their income today to afford the high house prices that boost the wealth of older people. But the older people are reluctant to borrow against this wealth so their living standards don’t rise either.

The ILC rightly notes that there is a problem in the failure of public policy to help people to decumulate and use their wealth. However, I would go farther than that.

The financial services industry is innovative in developing integrated products that go with the grain of people’s lives, so that you can both build up savings and draw them down when you need to. By contrast the Government has a random set of policies to help people at different stages of the life course. It pays out chunks of money in child trust funds or learner accounts. Sometimes it pays money out, and then draws it back in when it thinks you can afford it, as with student loans. When you are older, it supports you through the state pension, pension credits, stakeholder pensions and the new personal accounts.

However, the Conservatives have been thinking about how you could have a new kind of personal account so that, rather than moving through lots of these little interventions, we could have a single new scheme that would combine all those functions into one. For example, you could have some form of combined loan and savings account that would allow people to build up a trust fund, repay their loans, build up a nest egg and contribute to a pension pot all at once. That is what the savings industry is thinking about as well. It is time that the Government caught up with this debate.

More broadly, the difficulty of getting started on the housing ladder is making it tougher for young people to start families as well. The average age at which a woman has her first child has increased by 3.6 years since 1970. One of the many reasons for this is increased financial pressure on young families. High house prices are just about the most powerful contraceptive we have got.

Our party is firmly committed to helping the family. That means getting work-life balance right, and ensuring fair pay for women. But there is another way of being family-friendly – maintaining a fair balance between generations. This is why we do need to build new homes, though without Labour’s clumsy central and regional targets.

It is an admirable instinct for parents to wish to help their own children. That is why older people worry about inheritance tax more than younger people – it is money they wish to use to help their children or grandchildren get started on the housing ladder. Their instincts are right and we need to support them. However, there is a legitimate role for government here. If we just tackle the problems of getting young people started, family by family, we will end up where the only way to get a property is to have parents or grandparents with a house already who can help you to get started. That is not how to spread opportunity.

There has been much talk about our broken society. One thing which is surely broken is the contract between the generations.

David Willetts is Shadow Secretary of State for Innovation, Universities and Skills

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