It was always the Tory plan to run the country into the ground, then blame labour for the mess. However, I think its suddenly dawning on them that they may have laid it on a bit thick (maybe they should have held that early election after all). We have schools literally collapsing due to RAAC, something that’s been a known problem for years. They have of course blamed the last labour government (who had a programme to rebuild schools, which the Tories cancelled, with further cuts while Fishy Rishi was chancellor). And we have the escape of a prisoner from a (don’t laugh) “high security jail”, in part because of a lack of prison officers due to Tory cuts. Which again, they’ve tried to blame on labour. I mean at this rate, if the Tories answer to everything is to blame labour, why not just put labour in charge and the Tories can whine from the sidelines.
However, there is a more serious crisis looming than RAAC – the pension time bomb. In fact, the two are related. The cost of pension spending is currently £136 billion roughly 12% of all spending and 17% of all tax revenue.Just this year alone, to maintain the triple lock, required the government to find £11 billion in a single year (easily enough to pay for these school repairs). And this figure could rise to up to £45 billion in new spending by the 2050’s (that’s a little less than the UK’s defence budget, just to cover the increase in pension costs, in one year). By then the cost of funding the UK’s pension benefits is expected to have risen to in excess of 40% of all spending.
And if anything, the UK has it easy, countries with higher life expectancy’s such as Spain and Japan could be spending over 60% of their budgets on pensions. This explains why you have riots in France over the decision to rise the retirement age, as this is basically moving the burden for paying for pensions onto the shoulder of those who are still working and expecting them to pay for benefits that go to people who aren’t working (who then have the nerve to vote for far right parties, who make the young workers lives so much worse).
And I bring this up because there is a quick and easy way for our handsomest politicians to solve this problem once and for all – just stop paying for pensions. This could take the form of a hard default (a law is passed abolishing state pensions altogether), or a softer default, such freezing payments and letting inflation do your dirty work for you. And I’d argue that this is likely the default option, if nothing else gets done. Noting that its exactly what’s happened in other countries, such as several Eastern European countries after the collapse of communism, or in Asia after the late 90’s financial crisis.
Indeed, the Tories, despite their dependence on the grey vote, have quietly floated the item of scrapping the triple lock and/or cutting winter fuel payments. Pensioners need to realise that, the Tories serve only one master, the rich. Just because you are stupid enough to vote for them doesn’t stop them from throwing you under a bus (just ask the farmers, NHS staff, exporters or fishermen!). Besides, they know that they only need to play the race card next election and many people (including those who they’ve screwed over) will still vote for them.
I’ve criticised Starmer before for his policy of no new tax increases to restore public spending to pre-Tory levels. He seems to be under the deluded impression that just because labour are in charge, the post-brexit UK economy will magically start growing. And once it does (the day pig’s fly!), he can use this increase in tax revenue to fund public services. Actually, his options are likely to be, either A) impose Tory like austerity to find those tens of billions more each year to fund pensions. B) raise taxes steeply to pay for pensions (i.e. take money off mostly labour voters and give it to mostly Tory voters). Or C) scrap the triple lock, and use the savings to fund public services. Honest answer, over a long enough time period which option do you think labour will take?
I think its worth pausing a minute to review where pensions came from. While there are many egalitarian reasons for the introduction of pensions, I suspect it was the more pragmatic reasons that prevailed. Quite simply put, older workers were seen as less productive than younger workers. And young workers could also support large families (thus growing the workforce and tax base). So pensions were a way to give the old timers a gentle nudge towards the door. Now at the time, very few were making it to retirement age. And those that did rarely lived very long afterwards. So it didn’t cost nearly as much as current spending. Hence why such a sweeping policy was brought in without much thought given as to how it should be funded.
Now libertarians will say, this is why publicly funded pensions are a bad idea. But its kind of difficult to get people to save for retirement when so many are living pay check to pay check. Singapore for example has mandatory savings law’s, which require up to 30% of salaries to be put away for savings related purposes, along with further contributions from their employer (when libertarians gush over Singapore, this is one of those things they tend to leave out). Are you suggesting we bring in a similar law?
Private pensions can also be something of a lottery. It largely depends on market events, so if you made the mistake of retiring at the wrong time, or your company goes belly up (or your boss has sticky fingers), you could find yourself with barely two pennies to rub together. In fact, a lot of private pensions are underfunded, and guess who picks up the tab if they fail? This is sort of the whole point of public pensions, to provide an economic safety net.
And equally, before any pensioner say’s but a I paid my taxes I’m entitled to these benefits. Well firstly, your taxes got spent on whatever the government was spending money on at the time (cold war spending, education, healthcare, police, firemen, tax breaks for yuppies, etc.). Even if they had the good sense to set some of it aside for your pension (which they didn’t), the effects of inflation would mean its worth a pittance today (e.g. average earnings in the 80’s were £18k per year, so about £4k per year of tax revenue, which is barely enough to pay for 3 months of average pensioner costs today, even if all that money had been set aside).
This is why pensions are paid for by those who are currently working (remember that before you next mock millennial’s, they are literally putting food on your table). There is no guarantee such funding will continue. If the country votes for a government that screws over half of the country, well unfortunately, they can do that (you know, like how many boomers voted leave as a one fingered salute to the younger generations).
So what can be done? Well firstly I’d argue we need to start making some tough choices. One option would be to means test pension benefits. Now the counter argument you’ll get is, but that will cost more money and some people might not apply and thus not get the benefits they need. However, if that’s true, then surely we should apply the same to all other benefits? Why then do we means test unemployment benefits, or disability benefits?
I know people, who are retired and loaded (big house, big car, small….) and yet they have a bus pass, pension benefits, winter fuel payments, a free TV license, etc. that frankly they don’t need. While at the same time there are people subsisting on welfare, dependant on food banks to avoid starving. But if they manage to survive long enough, then magically on hitting retirement age they get transformed from a soap shy scrounger (as the Daily mail would call them), to one of the chosen few. It is frankly ridiculous. In fact while we are at it, why not merge pension benefits into universal credit (with being over a certain age being seen as a valid reason not to be in work), thus allowing those on universal credit to apply for the same benefits (winter fuel, bus pass, etc.) as pensioners.
Also the triple lock clearly needs to go. It just isn’t affordable and its unfair. Why is it that pensioner’s income is guaranteed to rise with or greater than inflation, when those paying for those benefits (or those on universal credit) don’t have a similar guarantee? And its likely this disconnect from the rest of the economy is what persuaded many pensioners they could safely vote for populist jokers like Farage and Johnson, as they assumed they were insulated from the consequences. Instead any increases should be mapped to the rise public sector wages.
These policies would produce some savings, but to be realistic, given the demographic factors, its probably not going to be enough to balance the books. Simply pushing the balance onto the shoulders of income tax payers isn’t fair and its not sustainable (fun fact, income tax in the US largely took off as a result of prohibition, in order to replace the tax revenue from alcohol sales, something to consider next time any American is doing their taxes). So we’d need to introduce some new taxes to pay for pension benefits.
Many on the left will point to wealth taxes on the rich. While this is a good idea (those with more disposable income should pay more in tax than those without any), but as I’ve discussed before, we need to be realistic about how much this would actually raise. The UK’s richest person is worth £25 billion, so even if we took all his money off him (well he is a brexiter, so I assume he’d happily give it all up for the cause!), it would fund barely 2 months of UK pension spending, or just over a week of total government spending.
Instead I’d point to things like carbon taxes, tightening up on capital gains taxes, financial transaction taxes and in particular taxes on “rent seeking” behaviour (as rent seeking encourages those with wealth to basically sit on their tot and do no actual work), which would obviously include a landlord’s tax (specifically on the value of their property portfolio’s). Of course, these taxes would disproportionately hit higher earners, with the added benefit that its a bit harder for them to dodge than regular income tax (which is sort of the whole point).
That said its not impossible to dodge these taxes. But given that many governments are facing the same problems, perhaps some international co-operation on taxes won’t be a bad idea, as this would eliminate many of the tax loopholes and the race to bottom game where the rich play countries off each other. Consider that the global economy is worth about $100 trillion a year. Even if you could capture 10% of this via taxes, that’s $10,000 per person in the world today (and most people in the world earn a lot less than that!).
This also raises the option of replacing pensions & other benefits with a system of universal citizens income, funded by said taxes (others would argue for using UCI to complement pensions rather than replacing them). In essence everyone would get a guaranteed income (or if they are in work, an equivalent tax free allowance), which can be used to supliment overall income, pay for living costs while at uni (reducing the financial burden of going to uni), or to help pay for retirement.
Of course, so long as the neo-liberals are in charge, there isn’t much chance of any of this happening. And who is it who votes for them? Well generally its older people who vote right wing (yes there are some who vote left, but statistically the vast majority vote right)….the very people who are at risk of losing their pensions as a result of such policies (again, neo-liberals serve the rich, not those who vote for them, as far as they are concerned, you are a mug). So to those voters I’d point out you have a choice. You can have your right wing ghouls in charge and let them run the economy into the ground. Or you can have your pension. Pick one, because in the long term, you can’t have both.
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