Why the young favour pensioner benefits over those for the unemployed

Focus groups reveal that young voters view older groups as more deserving. The sense of welfare as an insurance policy is being lost.

More than three-quarters of over 65s voted at the last election, compared with less than half of those aged 18–24. It is tempting to see this as the real reason behind the Prime Minister’s New Year pledge to protect pensions spending. Behind all the talk of "values" there is a fairly straightforward piece of electoral arithmetic.

In practice, however, this is more than simply pandering to the 'grey vote'. Demos/Ipsos-MORI research shows that those born between 1980 and 2000 are three times as likely to choose pensions than unemployment benefits as a priority for public spending. Young people may have borne the brunt of the downturn, with youth unemployment topping 1 million at times, but support for older generations remains strong. This is what Cameron is playing into when he says that people who have worked hard should have dignity and security in old age – and why George Osborne feels more comfortable targeting benefits for those under-25.

Those who worry that the young are getting a raw deal must engage with why public opinion tilts in this direction. Focus groups reveal that people want to protect pensioners not because they think they will benefit one day, or even that their own parents or grandparents will benefit now, but because they see older groups as more deserving. This is because of a combination of two things: the perception that the elderly are vulnerable, through no fault of their own, and that they have earned entitlements through contributions over time.

The contrast with attitudes to the unemployed is striking. Many see those out of work as more responsible for their own situation and less likely to have put into the system. Britain may have one of the stingiest systems of support for the unemployed in Europe, but that is because those in work fear they are subsidising those who are not. The sense of welfare as an insurance policy, that all those who are able to pay contribute to, is being lost.

Of course, self-interest is part of the story. Older groups put pensions top of their priority list, while younger groups think child benefit is more important. But what the 'grey vote' narrative misses is the extent to which different generations are willing to make sacrifices for one another. There may be more money to be saved in the pensions budget, but there are more votes in protecting it. 

People enter the Jobcentre Plus office in Bath, England. Photograph: Getty Images.

Duncan O’Leary is deputy director of Demos

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation