This odd situation can show up whenever there is an extended description of events of the past. It's normal for a story to be told entirely in past tense, as it sounds like the example paragraph is. If that text uses a word like "nowadays" (or even just "now") that normally refers to the present tense, we read it as referring to the time of the events being described.
I believe this is what Colin Fine meant by "backshifted". (It's not reported speech, though lot of it is reported thinking). Regardless this kind of construction can appear in any story that took place in the past.
This specific paragraph is even more confusing because of the second sentence which refers to a hypothetical future time.
To break it down a bit:
"he thought" - the thinking took place in the past, from the perspective of the narrator. Like most of the verbs in a normal story like this, it's in the past tense because all the action is assumed to have happened already. (*aside below)
"they would be watching" - this watching would take place a year or two after the thinking. That is, Winston is imagining into the future. That future may or may not be the narrator or reader's future. For this example it doesn't matter. It's "they would be" instead of "they will be" only because it's subjunctive - what might happen.
"children nowadays were horrible" - this "nowadays" refers to Winston's "now". That is, the time of the events that are being described in the surrounding text. It means that children were horrible in the days the story takes place.
(as an aside, this situation is even more confusing to talk about because the author wrote it 1949 about events that were to take place in his future (1984), which is now in our past! It's perhaps odd that even fiction set in the future is usually written in past tense. Written "properly", it should all be in the future tense such as "Children will be horrible in 1984.". The book should begin "It will be a bright cold day in April..." but no one writes that way.)