THE WELFARE STATE needs somebody to save it today. This morning, when Lord Turner of Ecchinswell publishes his mammoth tome on pensions, politicians must do something that they find very difficult — they must do nothing. Make no decision. Say nothing conclusive. Rule not a thing in or out. But, instead, read the report, think, debate it publicly. And then decide a course which, if chosen wrongly, could be the beginning of the end of the welfare state. I wonder whether Gordon Brown or David Cameron — for it will fall to the next leaders not the current ones to act — has it in him.
The pensions problem is actually very simple, and it is this: there are going to be too many old people in 20 years’ time, and not enough young ones to support them. In 1950 there were more than five people of working age for every pensioner. For the past 20 years, because the baby boomer bulge offset the effects of increased longevity, there have been four. But towards the end of this decade, the ratio will start to fall and by 2050 there will be just two people of working age for every pensioner.
Who will pay for all the pensioners? Should today’s 25-year-old be prepared to fund the retirement of today’s 50-year-old? In a brilliant speech on Monday, David Willetts, the Shadow Trade and Industry spokesman, set out why today’s 25-year-old will be significantly worse off in 25 years’ time than a 50-year-old is now. The decline in final salary pension schemes, the increasing difficulty of getting a toehold in a housing market that is still paying huge dividends to their parents, and the ending of free university education puts today’s 25-year-old at a number of disadvantages. They are far less likely to be home owners than they were 20 years ago. Because they cannot afford to buy a home, they will delay having families so will have children later and therefore have fewer of them, and so the cycle continues. In terms of opportunity and wealth, the postwar baby boomer generation has had and continues to have it all.
Baby boomers, concluded Mr Willetts, “have shaped an economic and social environment that works for them very well. A young person could be forgiven for believing that the way in which economic and social policy is now conducted is little less than a conspiracy by the middle-aged against the young.” You can read his speech in full here.
In many parts of the country, including West Sussex where I live, young families find it all but impossible to afford a home. Pretty much all the larger “family” properties are occupied by elderly empty-nesters, sometimes only using a single floor and closing off the rest of the house.
Yet these are the people, sitting on property worth hundreds of thousands of pounds, to whom the Government has just sent a £1.6 billion council tax refund. That is the cost of the £200 council tax refund promised as a bribe to elderly voters at the last election and paid this month to the eight million pensioners not in receipt of the pension credit guarantee and therefore not on the breadline.
Examine the logic: their council tax is high because they live in expensive homes larger than they need, thereby preventing young families from owning them. So instead of suggesting they move to smaller and lower-rated houses, the Government subsidises them. It is crazy.
This is the sort of problem that arises when governments feel they must pander to a section of the electorate which, because of its growing numbers, decides who wins and loses general elections. The same eight million people have also just received a £200 winter fuel payment (in fact that goes to 11 million pensioners, but 3 million are on pension credit guarantee so presumably need the extra money). That makes £3.2 billion in handouts this month to elderly people, many of whom do not need it: a penny on income tax taken off people who probably do need it and given to wealthy retirees. As one brave pensioner wrote to The Times yesterday: “I do not need this money, nor, I suspect, do a sizeable number of other recipients.”
Not all will be wealthy, of course, but the point is apt. Now imagine that situation getting worse as more and more older people with more and more electoral clout are given more and more sweeties by governments facing re-election.
It will take bold politicians to unravel all this and find the right solutions. Yet the debate is being conducted with the usual rat-a-tat between No 10 and No 11 preventing serious discussion, while parts of the media seemed more exercised last Sunday about a “nanny tax” increasing the already phenomenal cost of employing a childminder — not a nice thought, sure, but hardly the most important issue Lord Turner will introduce today.
Looking to future taxpayers to fund an increased state pension for those with comparatively large reserves of wealth cannot be the answer. Today’s pensioners will receive more from the welfare state over their lifetime than they paid into it, a balance that is beginning to switch with the baby boomer generation and is heading firmly in the wrong direction for the generations following.
Already, taxpayers in two decades’ time, and fewer of them, will be funding the hugely increased costs of NHS care for an ageing population, with all the expensive new technology that will be available. There won’t be enough money. And mightn’t these taxpayers be justified in arguing that they would sooner invest their money, if it comes to a choice, in improving their children’s educational chances? Or the trains that fail to get them to work on time? And sod the costs of healthcare, they might think, we can pay for it ourselves and so must they.
Impose too many costs on this generation — which will not expect to see any state-funded pension provision for itself — and it will want to stop paying altogether. The whole of the welfare contract could break down if we get this one wrong.
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