Most of the time, we’re happy to fund public services we’ll never use – NHS treatments we’ll never need, prisons we’ll never be incarcerated in – because we’re paying for a functioning state. Sometimes, however, it just looks unfair. The “triple lock”, for example, has since 2010 given the state pension a pay rise each year that matches earnings or inflation, whichever is higher, or by a decent 2.5 per cent.
Say you get a year of high inflation, when prices rise by more than 10 per cent, then a year in which wages catch up (this should be sounding familiar?): the state pension takes in both rises, while workers’ real incomes have barely moved. Then imagine this period is followed by a recession: the pensioners still get a raise. How is that fair?
The answer is that it’s gradually correcting a historical unfairness. Paul Johnson, the director of the Institute for Fiscal Studies, calls it a “random walk towards greater generosity” – a jerky, imperfect means to bring the UK’s historically tight-fisted state pension closer to that of other, similar-sized economies. It has been one of the means by which we’ve moved away from the grim pensioner poverty of the second half of the 20th century.
But the fudgy nature of the policy bothers clever people who like to see things organised properly. If it’s arbitrary, why is it a rule? Why not tinker with it (as Jeremy Hunt is considering doing) when you need some cash?
[See also: Tory wrangles overshadow Sunak’s G20 return]
One such person is David Gauke, who this week wrote a well-argued piece for us that I will sum up in one cherry-picked line: “Spending more on the state pension means taxing more or spending less elsewhere.”
This is the logic of austerity, which holds that public spending is like household spending – spending less is saving money. It’s a logic with which I disagree: austerity reduced the deficit, but we will spend decades paying for the consequences of a less healthy, less well-educated and more depressed population in our NHS funding and our economic growth.
That’s the truth about public spending: the needs of the population do not simply go away if you decide not to meet them. This is particularly true of the most vulnerable, such as older people with no income of their own: there is good evidence that the more low-income work older people do, the worse (and for the rest of us, more expensive) their health outcomes. Poorer pensioners are also less able to offer any informal care, which makes it possible for other people to work.
And let’s be clear about the pensioners Hunt is considering borrowing from: it’s younger workers who will really pay, long after he’s left the Treasury, to make this year’s Autumn Statement easier to write because their pensions will start from a lower base. Low savings rates will make the state pension even more important to this generation.
The real problem with attacks on the triple lock is that they allow politicians to disregard the big, difficult things that need to be done to reduce inequality between pensioners of the same age. Pension credit, which helps those on the lowest incomes, needs to be uprated properly. Means-testing the state pension would be fiendishly hard, but it would deliver huge savings in the long run. People in the UK need to realise that National Insurance, which many still think of as a pension pot, is nothing of the sort; it’s just income tax that some people are allowed to avoid.
A bold government would take the opportunity to grasp these nettles, to admit that paying for an ageing society is going to be expensive and attempt to build a consensus about the best way to do it. An argument over one arbitrary measure won’t help.
[See also: Broke Britannia]