George Osborne’s latest proposed tax cuts favor the old and punish the young.
Politico, 29th October 2015
“People try to put us down,” The Who’s Pete Townshend famously wrote in 1965, talkin’ ’bout his generation. Now aged 70, he’d have no such complaint — even if he weren’t still making millions touring the world. British pensioners have never had it so good. And it’s all at the expense of the younger working population.
A combination of socio-economic trends and deliberate Conservative policy has pitted the young against the old in the starkest fashion since the 1960s. This time, it’s not because the two generations listen to different music or use different substances to wind down in the evening — there are still plenty of weed-smoking, festival-going over-60s. For the first time in living memory, today’s young will be substantially less well-off than their parents, and today’s politicians are exacerbating their pain, rather than relieving it.
* * *
The Chancellor, George Osborne, wants to cut £4.5 billion of welfare top-ups to the low-paid. These are the exact “strivers” he often boasts of supporting: the people who get up early, go to work in the dark and do the right thing. His plans would penalize the industriousness of some 7 million working families by an average of £1,200 a year — a painful loss of income for households that are already struggling. The accompanying rise in minimum wage would offset that by a mere £150.
Why be so harsh on the working population? The Tories have promised to cut £12 billion out of the welfare budget. The trouble is that payments to pensioners take up more than half the welfare budget, and the Conservatives promised not to cut them at all. Worse: They made an extravagant pledge in the last Parliament to increase the state pension, either by inflation, the rate of wage increases, or by 2.5 percent — whichever figure is largest. So in April 2016, pensions will rise by 2.9 percent at a time when inflation is zero. The cost of this so-called “triple lock” to pensions is already about £6 billion a year, eclipsing the £4.5 billion in savings made possible by cutting tax credits.
If pensioners were markedly poorer than the working population, the triple lock would effectively redistribute money from comfortably off workers to the hard-up elderly. But pensioners are no longer the neediest. The median weekly income of pensioners (£394) is now higher than the median income of everyone else (£385).
* * *
So poorer youngsters are now being asked to subsidize the richer older demographic. This feels wrong, particularly when you throw property and private pensions into the equation: The old are sitting on a treasure chest of residential property, most of it owned outright, bought when it was still affordable. Property prices have risen so fast that today’s under-40s can only dream of buying their own place. In the meantime, they’re left no choice but to fritter away up to half their income in rent to their buy-to-let landlords from the older generation.
* * *
Meanwhile, many of today’s pensioners enjoy a luxury that few of today’s working population can look forward to: a final-salary with an index-linked pension. Now almost impossible to come by, this type of pension has all but been phased out in favor of schemes that have no guaranteed income and no protection against inflation. Yet because these generous schemes have created deficits in company pension funds — and big future obligations for the public sector — younger employees are pushed to work harder to plug these holes, even though they won’t benefit from the higher pensions themselves.
When David Cameron and George Osborne began their age of austerity in 2010, their mantra: “we are all in it together” and “those with the broadest shoulders should bear the greatest burden.” In practice, pensioners barely suffered from the cuts, while the young suffered real-terms falls in their income and university tuition fees rose from £3,000 to £9,000 a year.
If this seems like a deliberate attempt to protect the old and punish the young, that’s not so far from the truth. Osborne is an uber-political practitioner: Everything he does is plotted through the lens of political advantage.
And that’s how we should consider his current position.
Osborne thought he could get away with stringent tax-credit cuts now, at the start of a five-year parliamentary term, with both opposition parties flailing. A House of Lords vote and internal opposition forced him to rethink.
In his autumn statement next month, he will have to do something to mitigate the effect of the tax-credit cuts. But his earlier hubris shows the difference between being a tactical and a strategic master. In the short term, he might have escaped without suffering too much at the polls. Longer term, though, the tax-credit cuts could do the Tories immense political harm by confirming voters’ suspicions that the party is callous and out of touch.
But Osborne’s other political calculation will ensure that the broader generational inequity will persist: Over-65s are nearly twice as likely to turn out to vote than 18 to 24-year-olds, and they are nearly twice as likely to vote Conservative. That makes one happy pensioner four times as valuable to the Tories as a happy youngster. Until the young start to exercise their democratic rights as avidly as the old, politicians — in the words of The Who, that older generation classic — will have no qualms about putting them down.