Young people are still losing out to pensioners
Claims that pensioners have “lost out” from targeted cuts to a tax that they do not pay are utterly disingenuous, says Emily Fielder
This year’s Spring Budget seems to have precipitated a huge media frenzy about what it means for Britain’s pensioners. Commentators from across the political spectrum are asking why the Chancellor has forgotten the over 65s, why the Conservatives are no longer pursuing their core vote, and how are they thereby putting their entire electoral strategy at risk. This is a misleading and frankly damaging, narrative, which appears to have originated in research by the Resolution Foundation and the IFS.
We’re told that pensioners are – and I quote – “the biggest losers from this budget” because their incomes have been cut by £770 due to fiscal drag, which is pulling more and more workers into paying higher rates of tax.
That makes for a perfectly good argument for unfreezing thresholds. But the crucial point to be made here is that all tax-payers are affected by this, not just pensioners. Whilst the National Insurance cut does indeed target those of working age, it does not offset the rising tax burden on them created by fiscal drag. Some of them will still be worse off.
And it is spurious to argue that some groups have “lost out” from a targeted cut to a tax that they do not pay. Pensioners have a tax burden eight per cent lower than their working-age equivalents because they are exempt from National Insurance.
That’s before you take into account the one stand-out offering to pensioners in the spring Budget; the continued uprating of the triple lock. Next month, the state pension will rise again by 8.5 per cent – more than double the rate of inflation, and a £900 income boost for pensioners.
The lack of commentary around this effective hand-out is illustrative of a deeper fault line in our politics; many assume that the triple lock is sacred and untouchable. Why write a news piece about an inevitable fixture in British economic life? It seems there can be no whisper of reform to such an unfair benefits – yes, benefits – system. We are only permitted to have discussions about how we can continue to fund it.
Indeed, the very funding of the state pension has been seized upon as an opportunity for fear-mongering by those who oppose the Government. The shadow chancellor took to twitter to warn that National Insurance contributions fund the state pension and the NHS, and that further tax cuts would put these at risk, a view which has, in fairness, has been propagated by politicians from all parties. But it’s a disingenuous one. National Insurance is not a hypothecated tax. The state pension, as with any other type of government spending, is funded by general taxation. Moreover, the average person born in 1956 will receive £291,000 more in state benefits than they paid in tax over their lifetime. It’s therefore difficult to see how they have earned their state pension throughout their working lives.
We at the Adam Smith Institute are desperately trying to wake up politicians of all stripes, commentators and the public to Britain’s serious intergenerational inequality problem caused by an economic system which is weighted heavily in favour of older demographics. Fallacious narratives seriously risk setting back this cause by scaring politicians away from continuing to do the right thing and make the sort of economic reforms this country needs. The inevitable outcome of this is a further decline in opportunities for young people and a generation growing ever more discontent and radicalised. Is this really what we want?
Emily Fielder is director of communications at the Adam Smith Institute