Ed Balls and George Osborne attend the State Opening of Parliament on May 8, 2013. Photograph: Getty Images.
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How Labour can trump Osborne's pensions reforms

A state annuity scheme would improve the public finances, provide financial security and raise living standards.

When the hardline conference motions used to roll in calling for the nationalisation of the top 200 industries, John Smith would jest that we should replace the term "industries" with "chip shops". These days there are few opportunities for such humour in the Labour Party, but sometimes this means Labour avoids advocating an obvious state solution, even when it represents much better value than a typical annuity.

George Osborne’s Budget pension reforms are, in fact, a case in point. No one can doubt that locking pensioners into poor value annuities was no longer tenable. Giving those reaching retirement age greater freedom to make their own investment and spending decisions also makes plenty of sense. The concern is that the risks associated with such freedoms may result in some pensioners falling back on the state later in life. This not only means many living out their final years in penury but also the taxpayer having to find extra funds to cover social care or benefits such as housing benefit.
 
The Conservatives want to suggest that those who raise fears about the personal and fiscal consequences of Osborne’s reforms are accusing pensioners of being bad people, stupid and irresponsible to the core.  But did we accuse working age people of irresponsibility when we introduced opt-out defined contributions pensions for all?
 
The problem is a simple one: someone reaching retirement does not know how long they will live, and many underestimate how long they will. Someone who turns 65 this year will, on average, live to 85 (84 for a man and 86 for a woman) and annuities, for all their faults, take away the risk of failing to judge your life expectancy correctly.                    
 
The solution is equally simple. While continuing to offer retirees the freedom to pay down a mortgage, buy a Lamborghini or even a chip shop, the state should offer its own annuity. It has a vested interest in doing so because it will pick up the tab if Osborne turns out to be less prescient than he would have us believe. The state can offer value for money because it does not have to make a profit. If the state were raising funds through the bond market it would pay out a perfectly respectable interest rate, currently somewhat above 2.5 per cent for a 10 year bond. On this basis, someone investing £100,000 in a state annuity would be likely to do better by about £12,000 over a remaining 20 years of life than with a private sector annuity.
 
Indeed, because of the potential risk to the public finances the state may want to be more generous than this.  All it needs is clear and transparent actuarial calculations and payments could be made with those for the state pension. The insurance industry would howl but it would have little cause for complaint because the market failure is obvious and Osborne has already driven a stake through its less than generous heart. Besides, the state would not be a monopoly but act as a competitor to the private sector: as a spur to efficiency and innovation. And with a state annuity, freedom would be underpinned by security.  
 
Many suspect Osborne of alighting upon his pensions reform with more than a thought given to the short-term fillip to the public finances, as the newly retiring enjoy their unexpected freedom, and with little regard for the long-term impact on the public finances. A state annuity has the potential to provide a very substantial medium-term boost to the public finances while simultaneously warding off a potential fiscal time bomb. If the state annuity was sensibly generous, and the default position for three quarters of a pension pot, with retirees (anyone 55 or older) having to opt-out rather than opt-in to the state annuity, as many as half or more of those reaching retirement might take up the states offer and use their pension pot to pay for a guaranteed lifetime income.
 
With roughly 650,000 people becoming eligible in a year, and an average pension pot of close to £30,000, if half of retirees used three quarters of their pot (the remaining quarter being taken as a tax-free lump sum) to buy a state annuity, the public finances would be better off by around £7bn in the first year and still better off each year for many years to come. Over the lifetime of a parliament, the public finances might be boosted by as much as £30bn. Of course, there is a debate to be had about how we treat this on the public books, but without doubt the impact on the government’s finances would be exceedingly positive in the early years.
 
Where else can Labour so readily demonstrate that it can improve the public finances, provide financial security and raise living standards? And all this without nationalising any chip shops.

Nick Pecorelli is Associate Director of The Campaign Company

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Politics doesn't just connect us to the past and the future – it's what makes us human

To those people who tell me that they’re not interested in politics, I often say: “But politics is interested in you!”

I have long been haunted by a scene in George Orwell’s great novel Nineteen Eighty-Four. Winston Smith, the hero, is forced to watch propaganda films depicting acts of war and destruction. He is moved by something he sees: a woman trying to protect a child by wrapping her arm around him as they are attacked. It’s a futile gesture. She cannot shield the boy or stop the bullets but she embraces him all the same – before, as Orwell writes, “The helicopter blew them both to pieces.”

For Winston, what Orwell calls the “enveloping, protecting gesture” of the woman’s arm comes to symbolise something profoundly human – an expression of selflessness and of unconditional love in an unforgiving world. Scenes such as this we now witness daily in footage from the besieged eastern Aleppo and other Syrian towns, people in extreme situations showing extraordinary dignity and kindness.

I read Nineteen Eighty-Four for the first time in late adolescence. I’d dropped out of sixth-form college without completing my A-levels and was commuting on a coach from my parents’ house in Hertfordshire to London, where I worked as a junior clerk for the Electricity Council. During this long daily journey – sometimes two hours each way – I started to read seriously for the first time in my life.

I was just getting interested in politics – this was the high tide of the Thatcher years – and Orwell’s portrayal of a dystopian future in which Britain (renamed “Airstrip One”) had become a Soviet-style totalitarian state was bleakly fascinating. Fundamentally the book seemed to me to be about the deep ­human yearning for political change – about the never-ending dream of conserving or creating a better society.

Nineteen Eighty-Four was published in 1949 (Orwell died in January 1950, aged 46), at a time of rationing and austerity in Britain – but also of renewal. Under the leadership of Clement Attlee, Winston Churchill’s deputy in the wartime coalition, the Labour government was laying the foundations of what became the postwar settlement.

The National Health Service and the welfare state were created. Essential industries such as the railways were nationalised. The Town and Country Planning Act was passed, opening the way for the redevelopment of tracts of land. Britain’s independent nuclear deterrent was commissioned. New towns were established – such as Harlow in Essex, where I was born and brought up.

To grow up in Harlow, I now understand, was to be part of a grand experiment. Many of the families I knew there had escaped the bomb-ruined streets of the East End of London. Our lives were socially engineered. Everything we needed was provided by the state – housing, education, health care, libraries, recreational facilities. (One friend described it to me as being like East Ger­many without the Stasi.)

This hadn’t happened by accident. As my father used to say, we owed the quality of our lives to the struggles of those who came before us. The conservative philosopher Edmund Burke described society as a partnership between “those who are living, those who are dead, and those who are to be born” – and I find this idea of an intergenerational social contract persuasive.

Progress, however, isn’t inevitable. There is no guarantee that things will keep getting better. History isn’t linear, but contingent and discontinuous. And these are dark and turbulent new times in which we are living.

A civil war has been raging in Syria for more than five years, transforming much of the Middle East into a theatre of great-power rivalry. Europe has been destabilised by economic and refugee crises and by the emergence of insurgent parties, from the radical left and the radical right. The liberal world order is crumbling. Many millions feel locked out or left behind by globalisation and rapid change.

But we shouldn’t despair. To those people who tell me that they’re not interested in politics, I often say: “But politics is interested in you!”

And part of what it means to be human is to believe in politics and the change that politics can bring, for better and worse.

What, after all, led so many Americans to vote for an anti-establishment populist such as Donald Trump? He has promised to “make America great again” – and enough people believed him or, at least, wanted to believe him to carry him all the way to the White House. They want to believe in something different, something better, in anything better – which, of course, Trump may never deliver.

So politics matters.

The decisions we take collectively as ­humans have consequences. We are social creatures and rational agents, yet we can be dangerously irrational. This is why long-established institutions, as well as the accumulated wisdom of past generations, are so valuable, as Burke understood.

Politics makes us human. It changes our world and ultimately affects who we are and how we live, not just in the here and now, but long into the future.

An edited version of this essay was broadcast as part of the “What Makes Us Human?” series on BBC Radio 2’s “Jeremy Vine” show

Jason Cowley is editor of the New Statesman. He has been the editor of Granta, a senior editor at the Observer and a staff writer at the Times.

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage