YOUNG people will have to hand over almost half their salary to the taxman, according to a report which shows the escalating financial pressures facing new graduates.

Rising taxes and the overhaul of the pension system mean that students starting at university this year will be spending 48 per cent of their income on tax and other payments until they are 35. Many young people are already heavily in debt. Since 2000, graduate debt has increased by 318 per cent, while the average expected debt for new undergraduates rose by 8 per cent in 2006 to nearly £15,000.

The report by Nick Bosanquet, Professor of Health Policy at Imperial College, London, for the think-tank Reform, blames Labour’s changes to the tax and benefit system, which it says have “significantly penalised young workers”.

It gives warning of a crossover generation of people who pay the cost of the welfare state without being able to expect many of the benefits and labels them the IPOD generation — Insecure, Pressured, Over-taxed and Debt-Ridden.

Class of 2006: a lifebelt for the IPOD generation singles out the Pensions White Paper, which it says represents a bad deal for young people because it creates a double-whammy effect that will leave them paying for their parents’ more generous retirement settlement as well as their own. Under the proposals, young people must fund the increase in the state pension and make automatic contributions of 3 per cent of their salary.

The changes, it says, inevitably mean lower wages for new workers as employers try to claw back their own compulsory pension contributions of 4 per cent of salary.

By contrast older people will not bear the cost of higher pensions and people aged over 47 now can still retire at 65.

It also highlights that although people aged between 18 and 30 have paid higher taxes, the average age of motherhood — now over 29 — means that they have not received any compensation from new tax credits for families.

The report contrasts new graduates with the wealthy and relatively carefree baby-boomer generation. It highlights international research which has shown that people over 50 are developing lifestyles similar to teenagers.

It concludes that tuition fees and student costs are one of the biggest burdens. New undergraduates can expect to pay £33,512 — including fees, rent, living and travel costs — to fund a standard three-year degree course, a 17 per cent increase on last year’s figure.

It calls on the Government to consider the economic position of young people in both the 2007 Spending Review and also asks the Conservative Party to examine the issue in its policy review. It points out that people in their twenties are now more likely to borrow over three times their monthly income than any other age group.

“Above all, these reviews must focus on bringing the medium- and long-term growth of public spending under control to enable the overall tax burden to be reduced,” the report says.

Mr Bosanquet said: “Voters of all ages are aware of the difficult and worsening economic position of young people. This issue is key to future economic growth as well as fairness between the generations. We urge the Government to give serious attention to it.”

Andrew Haldenby, Reform’s Director, said: “Young people are in danger of drowning under a sea of rising taxes and new compulsory payments. They are in desperate need of a lifebelt, in the form of a long-term commitment to public spending discipline and tax reductions. If politicians want to re-engage with young people, they will find great value in this agenda.”

In a poll conducted as part of the report, two thirds of voters said that they thought it is more difficult for young people to get started in life than it was for their parents. Only 11 per cent believed today’s young people find it easier.

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