It’s the old that get the benefits, and the Tories the election wins
The government spends more than twice as much on each pensioner as on each working-age Briton
One of the major shifts in government spending over recent years has been away from young people and towards those in retirement. A study due this week from the Intergenerational Foundation thinktank shows that while spending on pensioners and children respectively increased at similar rates before 2010-11, the austerity years to 2019 proved much more generous to the old.
The report finds that in 2018-19, the government spent “on average £14,660 on each child, £10,180 on each working-age adult, and £20,790 on each pensioner” and that the gap in per capita spending on children and pensioners more than doubled over the previous 20 years.
This means pensioners captured 30% of the growth in public expenditure throughout the period, with most of the gains coming after 2010 and the introduction of the triple lock, though many and varied ancillary benefits also played a part.
That’s the George Osborne legacy. It was a clever policy for a man obsessed with maximising the Tory vote. Older voters rewarded the Conservative party with electoral wins in 2015, 2017 and 2019.
Of the £900m a year spent subsidising bus and train travel for the old and disabled, the foundation calculates 88% is claimed by the old, and a growing health bill before the pandemic was also disproportionately accounted for by outpatient appointments for the over-60s.
In one area, mental health, the foundation finds per capita spending on outpatient treatment for pensioners more than tripled between 2011–12 and 2018–19, whereas spending on children’s mental health rose by only 5.6%.
The situation is likely to persist as long as a majority of voters think means-testing benefits for the old is outrageous, but that it’s acceptable for families and children.
It is inconsistent that parents with an income above £50,000 are denied child benefit and that only workers on the lowest incomes can receive universal credit, yet a pensioner with a private income of £50,000 still gets the state pension and a free bus pass, all without any obligation (if they are fit and healthy) to continue making a contribution to society.
Much of the discussion of intergenerational unfairness has been stymied by the pandemic. The virus kills many more old people than young and so to rail against a tax and benefits system that unfairly profits the old is distasteful.
Debate is also curtailed by two misleading concepts that appear to be truisms, and yet are anything but.
The first false claim, put forward by some pensioner lobby groups, is that pensioners have paid for their retirement incomes, so means-testing the core pension should not apply. They also point out that pensioners pay income tax just like everyone else.
It is true the UK pension system has a contributory element: taxes paid over a life of work account for some of the monthly payout. It is also true that pensioners pay income tax. Yet a pensioner with an income of, say, £20,000 a year, has a much higher disposable income than a warehouse operator (the UK’s most advertised job) on the same salary, especially if the worker is trying to do things many pensioners took for granted in their youth, like start a family or buy a home.
A pensioner also doesn’t pay national insurance and, equally importantly, the national insurance contributions they made over a life of work account for a fraction of what is needed to pay the state pension over what can be 20 or 30 years.
The second claim, made by the current Conservative government, is that the best way to tackle intergenerational unfairness is to minimise the debt passed from one generation to the next. This argument acknowledges that with interest rates across the world at historically low levels, debt is cheap to finance at the moment, but stresses that interest rates can rise.
It’s true that they can rise, but the major central banks have signalled that can only happen after a sustained period of growth strong enough to warrant calming with interest rate rises. And that can only be the case if the working population has acquired the skills – and with them the productivity gains –needed to push GDP growth above previous norms.
Given that investment in skills training and education is falling as a percentage of government spending, that is not very likely. The pandemic and the transition to net zero emissions will only force governments to borrow more, further persuading central banks to keep interest rates low.
Poor pensioners do need support, but wealthy boomers should step aside and let the government dedicate its effort and cash to the young.
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