What runs through a politician’s mind when they hear talk of an ageing population? I fancy it’s something like those old Werther’s Original adverts. There’s Grandad or Grandma smiling from their armchair as they reminisce about the wonderful pre-War days when you didn’t need to lock the front door and when tuppence would buy you an estate in the Cotswolds. These are the people who, simply by dint of living, are unbalancing the welfare state. They are why the Government will have to spend more on cardigans and bags of sweets.
But this isn’t how politicians should think. Instead, when it comes to an ageing population, they need to spend more time considering those who haven’t yet done much ageing. The reason is in the life expectancy statistics. The average man born in 1945 is forecast to live to around 75 years old. Whereas for someone born this year it’s closer to 90. The Jetson kids, who will be born in 2047 and 2055, can expect to reach 100. And this is when the real imbalances will start. As David Willetts has pointed out, we’re currently in a period of “generational equipoise”, with a fairly even spread of different age-groups. But, over the next half-century, the proportion of the population aged over 65 is expected to rise by 9.6 percentage points to 27.1 per cent.
It’s these people, the young and unborn of today, who are set to make the biggest demands on the welfare state – but what will they demand of it? This question doesn’t get much airtime in a political system that chases yesterday’s ratings, yet it ought to be primetime material. Demographic changes are enough by themselves to add £billions to the Exchequer’s ledger. If today’s young grow up to expect a lot from the state, then it could be many £billions more.
Thankfully, some have tried to arrive at answers. A sure nominee for the Most Significant Report of this Parliament award is one called Generation Strains, published by Demos and Ipsos MORI last year. It set about analysing attitudes towards welfare among four different age-groups: the Pre-War Generation (born before 1945), the Baby Boomers (born between 1945 and 1965), Generation X (born between 1966 and 1979) and Generation Y (born between 1980 and 2000). Andwhaddyaknow? It turns out that the older generations are “more likely to prioritise pensions for extra spending”. In fact, the Pre-War Generation puts pensions at the top of their list of priorities. They’re a pretty voracious bunch.
What about those younger generations who will be the elderly of the future? Signs are that they will also impose great expectations on pensions spending, and not just because “people become more inclined to make this choice as they get older”. The report notes that the Baby Boomers are particularly indignant about what they get from the system: they feel that there’s a mismatch between what they contribute and what they receive, and they want more. And it also points out that the young are already keen on money going towards the elderly: half of Generation Y chose pensions as one of their top two priorities for spending.
This respect for the old – what Demos calls “cross-generational solidarity” – is a heartening thing. After all, a decent society is founded on more than fiscal transfers being made in your favour. Yet, at the same time, this also promises trouble for future governments. More old people clamouring for more money, and young people happy to give it to them, equals weighty increases in public spending. The Office for Budget Responsibility reckons that spending on pensions alone will increase from 5.5 per cent of GDP in 2019 to 7.9 per cent in 2064.
What’s frustrating is how recent governments, including the Coalition, have stoked these flames. A briefing note from the Institute for Fiscal Studies, published earlier this week, explains how the average amount of cash going towards each pensioner has increased by about £500 a year over this Parliament; eating into a good portion of the savings found elsewhere in the social security budget. This raises plenty of familiar concerns for the here and now, particularly about the fairness and effectiveness of George Osborne’s deficit reduction plan. But it also raises concerns for the future. What today’s politicians are doing is setting new, higher baselines for spending on old people. Tomorrow’s politicians will be saddled with those decisions just as the population really starts to age.
To be fair, the Coalition hasn’t entirely spared pensioners. As the OBR observes in its recent Welfare Trends Report, measures such as raising the state pension age should flatten out pensions spending across the next few years. But that’s it: flatten out, before it starts increasing again. And that’s before we get onto benefits other than pensions, such as the Winter Fuel Allowance. Part of the reason that those pensioner perks rile me up is that, despite not meaning to all that much in cash terms, they plump up people’s ideas about what the welfare state should do. They raise expectations.
Politicians talk about “expectations management” around election-time: play down your chances, so that no-one is shocked by the outcome. It’s about time they introduced the concept to the fiscal debate. There are ways to do it without alienating older people and their votes. That Demos report points out that “cross-generational solidarity” cuts both ways, with the elderly often most concerned about the prospects of the young, often precisely because they’re concerned about the prospects of their grandchildren – so why not appeal to that sense of generosity? Why not emphasise that, against what many people believe, a lot more is spent on pensions than on Jobseekers’ Allowance?
Which brings us to the question that circles around the next election like a carrion bird: will any politicians be upfront about the public finances and the cuts that still ought to come? I’d like to think that there’s electoral capital in plain, old honesty. So far, there’s scant evidence that our MPs agree.