Older people must shoulder their share of government spending cuts

Given general improvements in technology and prosperity, younger generations should, in theory, always be better off than their parents. But with pensioner households now earning more than their working age equivalents, according to a new report from the Resolution Foundation, this can no longer be taken for granted.

It is of course good news that older people are enjoying bigger incomes than they did in the past. But this welcome trend has coincided with government efforts to shield pensioners from the consequences of deficit reduction. Indeed, the last government was warned regularly about the disproportionate impact of fiscal consolidation on younger generations – not least by Alan Milburn in a report for the Social Mobility and Child Poverty Commission.

Unfortunately, lessons haven’t been learned, and the general trend towards much greater state spending on older people, paid for by the diminishing working age proportion of the population, is only set to accelerate. The Office for Budget Responsibility’s Fiscal Sustainability Report forecasts that, by 2057, the government will spend more than a fifth of GDP on health, long-term care, state pensions and pensioner benefits. Spending on education, meanwhile, is expected to fall from 4.4 per cent of GDP to 3.8 per cent over the same period.

Given our poor performance in education league tables and the opportunities to improve skills in science and tech, it is hard to avoid the conclusion that governments of all parties are prioritising the interests of older voters over the long-term strategic needs of the country.

The size of the liabilities the government is racking up are also much greater than generally appreciated. The official national debt is estimated at around £1.7 trillion, which is frightening enough. But our latest estimate of the real national debt – including substantial liabilities in relation to unfunded public sector pensions, unfunded state pensions and Private Finance Initiatives – stood at £8.6 trillion, or over £320,000 for every single household in Britain. The liabilities for state pensions are £4.4 trillion alone, a burden future generations will have to shoulder.

Given an ageing population is an inevitable trend, what can be done? There are two urgent candidates for reform.

First, the so-called triple lock is no longer defensible. Ensuring that the state pension rises each year by the highest of the consumer price index, average earnings or 2.5 per cent – essentially delinking such spending from the health of the economy and the ability of working age taxpayers to finance it – it is not just a bad idea in principle, but a dangerous one.

The Government Actuary’s Department says it is costing £6bn a year and when added to other costly universal pensioner benefits like the £2bn winter fuel payments, you start to see the yawning intergenerational chasm. The thorniest of policy issues right now is how to fund adult social care – given that there will be an estimated funding gap of around £3bn by the end of the Parliament, scrapping the triple lock seems a good first step to deal with it.

Second, the housing market is skewed towards older generations. Nearly three quarters of pensioners are home owners, but with the average house price now £284,000 (and much higher in London), it is little wonder that young people are struggling to buy.

Older people are enjoying the double whammy of higher incomes and more housing wealth. This isn’t the fault of pensioners, of course – the real culprits here are pro-housing crisis groups like the Campaign to Protect Rural England, whose opposition to development is widening the intergenerational gap.

It is right to recognise that some pensioners do live in poverty and that is unacceptable. If you ask young people whether they want their parents to live dignified and decent retirements, it would be difficult to find anyone who would say no.

But if we flip that question around, and ask pensioners whether they want their children and grandchildren to live more prosperous lives than they did, they too would say yes. That means putting the long-term health of the public finances and broader economy before short-term electoral calculations.