LONDON / The Guardian / Society / Social Exclusion / April 12, 2011
One of the government's best brains is David Willetts, minister for universities and science, who wrote an intriguing book called The Pinch, about how the generation now rising into retirement is clearing up Britain's wealth at the expense of the young. Another coalition smart cookie is pensions minister Steve Webb, who last week put forward decent proposals to recast pensions in a manner that will advantage many. He penned them at a desk in a department that is savaging benefits for the young.
Some reporting of Webb's pension plans has been misleading. There will not be a flat-rate pension of £140 in 2015: the Institute for Fiscal Studies cautioned it may not arrive till 2067, and warned there would be losers as well as winners even when it does. But this was nonetheless a serious attempt to deploy existing resources more fairly and more straightforwardly, as opposed to cutting them back. That makes for quite a contrast with working-age benefits, where the guiding principle appears to be slash and burn.
Rates are being cut and entitlement denied, both through a harsh new medical test for disabled people, and some extraordinary sharp-elbowed practices directed towards unemployed people. The lesson of the 1980s is that controversial big bang reforms are in the end less important than the steady build-up of adjustments that take place every year. The chief reason why the poor fell ever further behind under Margaret Thatcher was that benefits were never uprated in a manner that would have helped them to catch up. In this regard, the current gulf between the young and older people could hardly be more stark.
For the first time since the days of old Labour, pensions have recently been pegged to average earnings, which will sooner or later resume their inexorable rise, which has only been temporarily interrupted by the recession. Meanwhile, all other benefits, in contrast, have been unpegged from the overall cost of living, and tied instead to the cost of shopping – which excludes rising rents and mortgages. Over time they will, in direct consequence, decline steadily in real terms.
The relatively protected position of pensioners comes despite the fact that for the first time in recorded history, older people are no more likely to be in poverty than their younger counterparts. Their protection has a huge effect on the fiscal arithmetic, since pensions represent easily the single largest share of social security. The various payments aimed at older people represent almost exactly two-thirds of the Department for Work and Pensions's budget, and around half of the overall welfare bill once tax credits and other things are added in. The corollary is that the £18bn cut from the budget that the government is set on will hit younger adults and children around twice as hard if pensioners do not share the pain.
I am certainly not advocating mugging grannies in order to protect the younger poor. In general, people will certainly have to work longer before they get their pension, as the coalition has said. But it would be far better if the cruellest cuts to the young were avoided through paying off more of the deficit through carefully targeted increases in tax. A good place to start would be to restrict tax relief on pensions to the basic rate, as was proposed in the Liberal Democrat manifesto, before being quietly forgotten.
The contrast between disappearing childcare credits and disability payments on the one hand, and universal bus passes and fuel payments on the other, is stark. After all the talk of social mobility, it seems outright weird to support later life at the expense of earlier years that settle the chances of getting ahead. When Willetts comes to write his next edition, he will need to explain not just how older people pinched all the wealth but how they stole the welfare budget as well.
Tom Clark is the Guardian's leader writer on social affairs.
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