University graduates will have to hand over almost half their salaries to the taxman within five years, according to a report which shows the escalating financial burdens facing young people.

The “IPOD” generation of young people who are Insecure, Pressured, Overtaxed and Debt-ridden are the victims of an institutional bias that has tipped the balance between taxation and spending against young people in favour of older generations, the report from the independent non-party think-tank Reform says.

It argues that while other developed nations, notably the United States and France, are beginning to address this intergenerational bias and to design their public policy around the interests of young people within an ageing population, the British Government has virtually ignored the issue.

As a result, the young are being increasingly asked to shoulder the burden of increased public spending on pensions and health services, which are primarily used by a growing number of older people.

The report calculates that a new graduate on an average starting salary of £27,155 would be left with only £13,862.26 a year to spend after student loan repayments, direct and indirect taxation, national insurance, pension contributions and council tax.

Nick Bosanquet, Professor of Health Policy at Imperial College and a consultant director at Reform, said: “We have to be careful of piling more and more of the burden of public spending on younger taxpayers. We need to put the issue of intergenerational fairness at the forefront of public policy.”

The solution, he said, was to reduce the overall tax burden from the current level of about 42 per cent to less than 40 per cent. “Over the course of two parliamentary programmes we would hope to get state spending as a percentage of GDP [gross domestic product] down to 35 per cent to reduce the tax burden on the younger generation without increasing it on the older generation,” he said.

Andrew Haldenby, the director of Reform, has called for the introduction of a new concept for economic policymaking – the “investment margin”, which measures the resources available to individuals to spend on their own training, healthcare and retirement. A higher investment margin would free up the IPOD generation’s capacity to invest in the skills that they require to be competitive in today’s labour market.

It would also make them less reliant on their parents for help to get a deposit for their first home. The report points out that property prices for first-time buyers are eight times the average earnings of those aged 22 to 29, up from five times in 1999.

The report said that although Gordon Brown’s elevation to Prime Minister had raised hopes that the IPOD generation would be a priority for the Government, recent tax reforms disproportionately benefit older people.

One of Mr Brown’s early priorities was to help first-time buyers. But the recent Comprehensive Spending Review/Pre-Budget Report introduced an 18 per cent rate of capital gains tax. This will be of more help to older people as those who own a second property, who tend to be older, will pay 22 percentage points less in CGT if they sell the property.

A reduction in the basic rate of income tax from 22 to 20 per cent as of April may appear to benefit younger people, but it has been funded largely by removing the 10 per cent tax rate, which will disproportionately affect young people on lower salaries.

The report recommends targeted tax reductions, such as a much higher personal income tax threshold of up to £15,000. The report, The Class of 2007: Inaction Sinks the IPOD Generation, is the third in a series of Reform reports.

Vince Cable, acting leader of the Liberal Democrats and Treasury spokesman, said that Mr Brown’s obsessive tinkering with the tax system and introduction of top-up fees meant that graduates on modest salaries now face an unacceptably high tax burden.

“This report is a damning indictment of Labour’s treatment of young graduates,” he said. “A decade under Labour has left many young people facing crippling student debt, high council tax bills and, following the abolition of the 10p rate, higher levels of income tax.”

Depressed iPod generation
49% typical tax burden of a new graduate in 2012

Second homes
1.9% proportion of second-home owners who are aged under 30
60% proportion of second-home owners who are aged over 60

Property
5.2 times average earnings cost for average first-time buyer property in 1999 (£71,623)
8.3 times average earnings cost for average first-time buyer property in 2006 (£145,970)

Men at home
50% of men aged 20 to 24 living with their parents in 1991
58% of men aged 20 to 24 living with their parents in 2006

Women at home
32% of women aged 20 to 24 living with their parents in 1991
39% of women aged 20 to 24 living with their parents in 2006

Tax
£5,225 current income tax personal threshold
£15,000 ideal income tax personal threshold

Source: Reform – The Class of 2007: Inaction sinks the iPod generation

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