Jonathan Isaby is Chief Executive of the TaxPayers’ Alliance.
As the government faces a backlash over its changes to tax credits, you’d be forgiven for thinking that the “low-hanging fruit” with regards to welfare savings had already been clutched.
In narrow terms of electoral politics this may be true, but to an objective observer with little concern for winning votes the way in which savings are being made in the welfare budget would look grossly unfair. Regardless of what one thinks about scrapping Housing Benefit for the under-25s, cutting it for those adjudged to have more bedrooms than they need or taking the knife to the monstrous tax credit bill, it cannot be viewed in isolation of overall welfare spending, the majority of which goes towards the over-65s.
With pensioner perks and the NHS protected, the State Pension increasing rapidly and the international aid budget rising arbitrarily, spending cuts will have to fall disproportionately on younger generations.
Take the State Pension: this year it will cost £90 billion, three times what was spent on secondary education in England last year. The so-called “triple-lock” ensures that it will increase by a minimum of 2.5 per cent regardless of the cost of living. In times of high inflation and low wage growth it’s justifiable to increase the State Pension in line with prices because it’s not as if many over-65s are in a position to increase their income by taking on more hours’ work. But given that people of working age have suffered through stagnant wage growth and high inflation, it’s perverse that the taxes they pay will now ensure the State Pension increases as fast as their wages for no apparent reason other than its recipients’ propensity to vote.
Part of the problem in addressing the intergenerational unfairness in the UK is the impression that current pensioners have “paid in” to the system and are only drawing down on their contributions. Whilst it’s true that the State Pension is a contributory benefit, the taxes current pensioners paid have not been put aside for them in retirement – they were spent on shorter, less generous retirements for fewer people at the time. Now current taxpayers have to fork out for the longer, far more generous retirements enjoyed by today’s pensioners. In the past 50 years, male life expectancy has risen by 10 years, so increasing the State Pension age by two or three years over the next decade is hardly an adequate policy response to such stark demographic change.
Universal benefits such as the ”Winter Fuel Payment” and free bus passes are recent inventions, so can’t have been “paid for” by current pensioners in any meaningful sense.
One only needs to look as far as the Office for Budget Responsibility’s Fiscal Sustainability Report to see where our gerontocratic approach to public policy leads us. By 2054-55, the government is forecast to spend a total of a fifth of GDP on health, long-term care, State Pensions and pensioner benefits. To help pay for this, spending on education is forecast to fall from 5 per cent to 4 per cent of GDP. This is set to happen in the only developed country in the world where the young are less literate and numerate than the old and the education system inferior to that of Vietnam.
The housing market is also rigged in favour of older generations. For years it was the British who were obsessed with home ownership while our continental cousins were content with renting, but now home ownership in France is higher than in the UK. Nearly three quarters of pensioners are home owners, but with the average house price now standing at £284,000 and barriers to home ownership being voraciously defended by anti-housebuilding lobbyists like the Campaign to Protect Rural England, the intergenerational equilibrium is getting even more out of kilter. Meanwhile, taxpayers fork out ever larger sums for housing benefit as rents explode.
This is not how societies are supposed to develop. The assumption that children will be better off than their parents can no longer be taken for granted. In 2013, the former Labour Health Secretary, Alan Milburn – appointed by David Cameron to chair the Social Mobility and Child Poverty Commission – called the government out for the intergenerational unfairness in its fiscal consolidation, but his recommendations have largely been ignored as the government continues apace with its lopsided approach to austerity.
In 2011, after adjusting for the cost of housing and children, the average incomes of pensioner households surpassed the average income of the rest of the population for the first time and according to research by the Institute for Fiscal Studies, most people retiring now will be better off than they were on average during their working lives. The increasing living standards of pensioners should be celebrated, but pursuing policies that further widen the gap at the expense of younger generations is morally bankrupt.
The social contract between generations that Edmund Burke so eruditely articulated more than 200 years ago is fundamentally broken. With home ownership out of reach for so many youngsters and taxpayers spending £36 billion a year to service the government’s £1.5 trillion debt pile, it’s time that ministers faced up to genuinely tough decisions.