Pensioners should suffer their share of the cuts

The Comprehensive Spending Review (CSR) was not particularly comprehensive. It will reduce spending as a proportion of national income to the levels we had in 2007 – hardly ambitious. By 2015, the state will still be spending 45% of national income (about 40% using the government’s preferred measure which overstates the national income denominator).

One reason why the CSR was relatively lame was because two areas were effectively excluded – the NHS and overseas aid. But another large interest group also escaped scrutiny: older people.

This may not be surprising. In both the 2005 and 2010 elections, the main parties were doing anything they could not to upset older voters – indeed the Conservatives’ 2005 manifesto went to extraordinary lengths in proposing distortions of the tax system to help old people. One of the problems when the government becomes the main provider of income to older people is that, as the electorate ages, it becomes more difficult to rein spending in – there is a vicious circle rather than self-correcting mechanisms at play. The median age of active voters (i.e. those who actually vote) is already over 50 and is rising rapidly. The young do not have much chance at the ballot box these days.

So, the CSR was pretty tough on the young – student grants will go; we will have the cliff-edge removal of child benefit for those earning around £40,000; and VAT and other taxes are increasing. Meanwhile, the sacred cows that most benefit the elderly – the NHS, benefits in cash and kind, and the basic state pension are either being protected or enhanced. Furthermore, benefits to pensioners are always increased to compensate for VAT increases whereas those who are working suffer reductions in real wages.

Read the rest of the article on the ConservativeHome website.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

35 thoughts on “Pensioners should suffer their share of the cuts”

  1. Posted 23/02/2011 at 13:32 | Permalink

    What nonsense. The vast majority of todays elderly have already made their contribution to state coffers, contributions that were calculated on the basis of the benefits they now receive. Yes, those costs have ballooned, but thats the fault (in the NHS in particular) of breathtakingly incompetent management, political expediency and the comforting “final salary pension” arrangement – which benefit no-one.

    Most of the “older people” were formerly economically active, contributed to NI and created some capital to provide for their old age. Thanks to the brilliant idea of quantitative easing, inflation will soon be in double digits while the returns we can get from our capital languishes near the 1% mark. So, facing significant income reduction plus cost increases, Philip Booth suggests we need to give up our bus passes and take a beating on income tax. (I have already said goodbye to my free swimming, and I hope the £10 per annum is wisely spent.)

    Oh, and the suggestion in the report that, as part of pension reform, a future NI sysytem might allow individuals to opt out, is extraordinary. Surely the good professor appreciates that only the most indigent will opt out; will he refuse them the benefits because theyve never contributed? Pull the other one.

    State expenditure is out of control because of hopeless management. There is no reason why any particular area of expenditure should not be closely examined for savings, and distortions to both state income and expenditure should be addressed. But it is unproductive to focus on an area which will be subjected to higher than average cost of living increases and concurrent lower incomes. That can only lead to more reliance on the state in the longer term.

  2. Posted 23/02/2011 at 13:39 | Permalink

    This article seems to overlook the way that it is the younger people who have loans and mortgages are benefitting greatly. Borrowers, as Lord Young was kicked out for saying, have never had it so good. I recollect my mortgage rate at 15.4% in the depths of the 1990 recession – not the low rates enjoyed today. I believe a similar experience was had by those in the early 80s recession when Lord Howe also upped VAT from 8% to 15%.

    Meanwhile, the majority of responsible pensioners have saved some money as they have headed towards retirement and relied on the income from the savings to supplement their pension. This has been affected drastically by the cut in the bank base rate to 0.5%.

    The elderly (and I am some way off 60 by the way!!) have borne their share of the burden. Whether it is fair is difficult to quantify but to make out they have encountered no pain is missing a key point

  3. Posted 23/02/2011 at 14:08 | Permalink

    I agree with Philip that we should all be in this together, including pensioners. I agree that the government should be cutting its spending further than it currently seems to be proposing.

    I also agree that ‘universal’ handouts to the elderly, such as free bus passes and winter fuel allowances, should at least be considered eligible for cutting, instead of being exempted because of a politician’s ill-considered election promise. The fact that many old people would bitterly resent losing these benefits simply demonstrates how hard it is to withdraw handouts, even when they were unearned in the first place.

    I know Philip is a something of an expert on pensions; but he seems to have overlooked the recent proposed switch from using the Retail Prices Index to index pensions to the Consumer Prices Index. I believe the government estimates this will ‘save’ the government more than £6 billion a year, and it will save certain other pension providers, such as the Universities Superannuation Scheme, many hundreds of millions a year too. I, as a pensioner, anticipate losing some 10 per cent or more of the ‘real value of the USS pension I thought my contributions had earned, should I live as long as my statistical life expectancy’.

  4. Posted 23/02/2011 at 14:13 | Permalink

    We cannot justify winter fuel allowance,free TV licences,bus pass etc being paid to wealthy pensioners.These should be means tested and anyone in receipt of a pension more than-say- £12,000 pa
    should not receive them.I am a pensioner myself but think that government finances must be put on a sustainable footing.Similarly no dept’s budget should have been ringfenced and savings and efficiences should be made across the board.MJC is right that mismanagement is to blame for most of this but that doesn’t solve the problem.Labour government made the problem worse by applying unrealistic discount rate,using NIC as income tax and destroying private sector pensions.There is a pensions timebomb which can only be addressed by greater contributions,smaller pension pots and extended retirement age in sensible proportions.It the problem is ignored and not put on a sustainable footing we are just passng on the problem to future generations
    which has been the policy so far..

  5. Posted 23/02/2011 at 14:54 | Permalink

    What a load of rubbish. Having paid into the tax system all my working life I object to your organisation suggesting such nonsense. Ruth Porter speaking on LBC this morning should be ashamed of herself. Your organisiation claims to be non political but it has close links with Liberty. And your Director General has links with the Liberal Party.

    Because both myself and my wife have two small ocupational pensions which we paid for, we are penalised by this unfair tax and benefits system. Gordon Brown destroyed pensions schemes when he stopped them reclaiming tax on dividends. Interest on savings have dropped and that also makes any savings that we have worhless.

    I would say to anybody these days that it is stupid to bother to save as savers are treated far worse than people that just borrow and spend all their lives.

  6. Posted 23/02/2011 at 16:23 | Permalink

    @David – as it happens, with state pensions, the plan is that the government will increase these with the higher of CPI, RPI, wages or 2.5% (triple lock has become quadruple lock).
    @Trevor – you make my point perfectly. Gordon Brown taxed your pension fund in order to fund benefits like this. You have a lower net income and then receive all these benefits. I would rather you had not been taxed unfairly in the first place. As it happens, neither me nor the General Director has a party membership but I am a former Conservative candidate and he is a former Lib Dem. We have no links to Liberty whatsoever. We are about as non-political as you can get.

  7. Posted 23/02/2011 at 18:25 | Permalink

    The comments by MJC and Trevor about the elderly having contributed all their lifes and now only claiming their fair share illustrates precisely what is wrong with PAYGO pension systems. What is the ‘appropriate’ return for a given amount of contributions paid over a lifetime, and how much is ‘too much’ or ‘too little’? There is no ‘objective’ answer to this. It is decided by a political formula following political considerations, especially the power balance between the recipients and the contributors.
    That’s were the case for depoliticising old-age provision comes in. In s savings-based system, you would be free too save as much as you can or want during working age, and the resulting pot of savings would constitute your pension. There would be no political discussion to be had about this. If you have £X, you have £X.

  8. Posted 23/02/2011 at 18:28 | Permalink

    Having now read the full Discussion Paper, I have to confess real disappointment that something quite so facile should appear in the livery of the IEA, in whom I have an extremely high regard. The paper deserves consideration, mainly because it must have used the typical political expedient of starting with a conclusion and then filling in the most convenient data and arguments. Fortunately, robust evaluation easily exposes those less convenient. Sadly, in the medium of a blog, it is impossible to fully critique the paper; all the more difficult when faced with something quite so insubstantial. Suffice it to say that, whilst the objectives may well be sound and desirable, the proposals for effecting change are based on seriously flawed assumptions – as far as one can tell.

  9. Posted 23/02/2011 at 19:55 | Permalink

    I don’t think that you should cut pensioners benefits until the speculators, who nearly destroyed the entire economic system with their irresponsible gambling, pay THEIR FAIR SHARE towards correcting the problem, in proportion to the damage they have caused. You seem to be keen on talking about people taking responsibility for their actions, well that applies to the speculators aswell.

  10. Posted 23/02/2011 at 22:05 | Permalink

    Public sector pensions have been reduced by the indexation switch from RPI to CPI, even if there is some kind of triple lock on state pensions. So it would be a mistake to think that ‘pensioners’ have not already participated in the cuts — as I agree they certainly should.

  11. Posted 24/02/2011 at 09:00 | Permalink

    David, that is true – though I prefer to regard this as a matter of contract between the government and its employees rather than as an “old people’s issue” (though I realise that that is a rather fine distinction that might leave people a bit bemused!). As it happens, I think this particular move is wrong: I think that the government has broken contracts here and it should not break contracts.

  12. Posted 24/02/2011 at 14:28 | Permalink

    What a mean penny-pinching scrooge you are. These concessions are absolutely necessary for many older people who have worked and contributed all their lives. You are probably paid millions for the “work” that you do and you want to save a few measly quid at the expense of those that can least afford it. Yes, I know some pensioners do not need it, but I would rather that some that don’t need it get it, than risk those that do need it not getting it. How do nasty, greedy, selfish people like you manage to sleep at night?

  13. Posted 24/02/2011 at 16:19 | Permalink

    Philip Booth should know better! Pensioners have had to live through many previous periods of deprivation, a world war, rationing, exceedingly high mortgage interest and other recessions, all of which have been outside their control. Now it is the turn of the current generation to experience some of the hardship that arises due to governments ineptitude from time to time. The cuts are already punishing those of us on low incomes, the cost of staying alive is far higher than for any other group – rising fuel, food and council taxes costs represent a much higher percentage of our income. What little savings we have produces an almost nil return.

    No, Philip Booth, if the banks can still run roughshod over their moral obligations and politicians with a recent history of very poor moral scruples can insulate themselves from the very measures that are affecting everyone else, then it is only right that pensioners, who have paid for what they are entitled to, should be protected. We have earned it! Remember too, we are a major voting force and growing, so watch out!! Could it be that such measures proposed might be a way of introducing euthanasia by stealth?

  14. Posted 24/02/2011 at 20:06 | Permalink

    I note with interest your think tank’s comments. No doubt not one of your members will ultimately have to rely solely on the State Pension,but will be cushioned by a final salary pension subsidised in part by taxpayers, including some pensioners.

    Did your members examine why pensioners “fringe benefits” exist? It is because successive Governments made no effort to restore the link between pensions and wage inflation which led to the state pensions in the UK being among the worst in Europe. Fringe benefits were granted under duress to mollify pensioners rather than tackle the inequality of pension payments. Notwithstanding, given how many pensioners are on income support, withdrawal of fringe benefits will mean even more pensioners claiming this extra benefit. Where is the saving in this hypothesis.

    Given your remit for the public good there has for years been a deafening silence while pensioners suffered the disparity between wage inflation and RPI in its effect on their income. I heard no missives about the decline in living standards until we now find RPI is for once ahead of wage inflation. What do we find now it is? Why, the Government decide to move the goal posts and use CPI as the basis for pension increases. What a surprise!

    One final question, who is funding the Think Tank?

    Roy Roberts

  15. Posted 24/02/2011 at 20:24 | Permalink

    “Remember too, we are a major voting force and growing, so watch out!!”

  16. Posted 24/02/2011 at 20:51 | Permalink

    Note from PB to all commentors: I shall wait until early next week and respond to the various comments that are left over the next few days. Just to correct factual things, though…

    Roy – none of us have final salary pensions (I have a tiny one from my part-time university position), there is certainly no taxapyer subsidy for our pensions and we will have the same loss of income as everybody else in old age because of Gordon Brown’s “tax grab” on pension funds. The think tank is funded by private donations.

  17. Posted 24/02/2011 at 21:12 | Permalink

    You seem to have had plenty of funding from various sources yourself Mr Booth, and what has been
    your contribution to society ? Cartloads of B/S no doubt.

  18. Posted 25/02/2011 at 07:21 | Permalink

    As a nearly pensioner i object to this “persons’ comments,if we cannot look after pensioners after they have worked for 50 years and paid into the system,then it is no wonder that the current generation are not inclined to work. Maybe it’s time he got a proper job(if he can find one) and stop being such a prat.

  19. Posted 25/02/2011 at 09:41 | Permalink

    What a pity that this medium, a blog, is such a poor opportunity to assemble a rational response to Professor Booth’s paper. One cannot deal with his data and assumptions in detail; that’s simply not practical. However, one must wonder at the provocative headline, Pensioners should suffer… Taken in the context of a thin paper, desperately short of factual analysis and entirely devoid of impact assessment, one must speculate that it is merely puff. If it were not for the IEA label, one would dismiss it as another political “leak”, designed to gauge public attitude. What a disappointment.

  20. Posted 25/02/2011 at 11:13 | Permalink

    MJC – I shall respond more next week. Some analysis is necessarily deductive as with the suggestions for a new state pension system. The suggestions for abolishing the non-means-tested benefits arises because they have no economic justification – it is difficult to analyse their impact except that they complicate a system that is already complex and distort (in the case of bus passes) decision making. We propose a simple system of means-tested benefits for poorer pension and a single state pension. The question about the headline is a reasonable point. The purpose of these proposals (with others we have made) is to have much lower taxes – people would not suffer

  21. Posted 25/02/2011 at 13:03 | Permalink

    Philip, you say “we(Philip et al) will have the same loss of income as everybody else in old age”! So? Your income is FAR and ABOVE most of us and therefore have the opportunity to save a great deal more for the future, (as we did – even from small earnings) only to find that the income from such savings are now almost nil. The demise of Bradford and Bingley cost investors the total value of their shares with NO COMPENSATION even though B&B still exists. Santander should have had to make a contribution towards redressing that before being allowed to “cherry pick” only the best bits left over. Clearly there is too much self interest in the financial world, in the protection of exorbitant bonuses and the “I’ll scratch your back if you scratch mine” attitude. The excuse that the strict control of bonus payments will “drive the best people away” is also a nonsense – if they are good enough then they should work according to their salary – as the rest of us have had to do and take a salary CUT or lose their job if they fail to perform. The type of people who only work because of massive bonuses demonstrate a level of greed that is beyond moral belief! Electronic share trading excludes small shareholders from taking lucrative advantage of share movements, (either up or down) as they happen, such that they always remain far behind the play!

    So it is all right to have a go at the less well off and pensioners is it? “Love your neighbour as yourself”

  22. Posted 25/02/2011 at 17:52 | Permalink

    Did Philip Booth live through the 2nd World War and suffer the traumas of the Blitz like I did?
    Did he experience the shortages and rationing at this time and for 6 years after the war?
    Does he know what it feels like to live and sleep in a coal cellar without heating during the war ?
    Did he live through the coldest winter of 1946/7 with no heating because there was a shortage of coal ?
    NO CENTRAL HEATING at this time.
    Did he miss his father who was away most of the time serving in the RAF?
    Did he sleep at night because of the air raids?
    Did he do his National Service?

    Pensioners born before and during this time deserve everything they are receiving plus more.
    We are the poor pensioners of Europe.
    Mr Booth lives on another planet and should get a life before knocking us pensioners.
    We have already lived through a period of austerity brought about by Hitler.
    We don’t need any more Hitlers telling us what we should have or have not!

  23. Posted 25/02/2011 at 18:21 | Permalink

    “It is a matter of political judgement as to whether the ire of a particular group in society and consequent loss of their votes is worth incurring. However, the measures appear to range from the electorally difficult but economically realistic – abolishing free bus travel, to the barking – making people over 75, the majority of whom are widows, pay for television licences.”

    More on my blog

  24. Posted 26/02/2011 at 19:36 | Permalink

    To even think of taking from the pensioners is like taking sweets from a child. The pensioner today has to travel to meet friends and family, this is the highlight of their week/day. The bus pass allows the pensioner to integrate communicate and be one with the community, it allows them to volunteer their wisdom and their services to the community . It also allows the pensioner to go to exercise classes , swimming ,Tai Chi, dancing etc allowing them the freedom to make friends and remain in the community longer as they will be healthier and more importent, they are looked after within that group.

    The winter heating allowance, I would agree that those who go to warmer weather ( abroad ) should not receive the payment but for those who remain, I feel that the colder the area the more heating allowance should be granted, afterall the weather in Britain is not the same all over. Going back to taking sweets from a child, i beg you tothink ,that child will remember and will pay back at the polls.

  25. Posted 27/02/2011 at 16:32 | Permalink

    The words I would like to use as to what I think of Phillip Booth are unprintable So if he thinks of the worst words he knows of describing someone obnoxious and adds ****hole to the end he will be pretty close. Pensioners have served the community and paid their dues (and still do) Most, as children, did not have the benefit of a welfare state or a NHS and came from poor working class backgrounds. Leave them with the little bit of dignity they still have left, You disgust me.

  26. Posted 27/02/2011 at 20:29 | Permalink

    Just wondering what where the cuts to the prison service ?, besides letting prisoners out early , which dos,nt work as prisoners are now going back to finish there time as they are missing the cushy life inside. My solution to the problem is make them work and all wages be paid back into the system, that would surely put some money back into the coffers, but then again they will demand their human rights and win . I wonder how the British goverment would feel if all pensioners here went to the european court of human right and laid their case. There is a case to be had here as the pensions are paid a pension and not a allowance like the carers who have no say .

  27. Posted 28/02/2011 at 16:33 | Permalink

    Message: Before Phillip Booth gets in the think tank again maybe he should learn logic and get some facts.I have just retired after 50 years of work 12 years in the military.My pension is £139 per week.I have never claimed benefit and always paid my way.Does he not realise that when one retires one spends more time at home using more electricity and gas.Why should some pompous idiot have the audacity to say we should not get free bus passes etc.and at the same time give money to promiscuous little girls who have never paid a penny into the system to bring up their illegitimate child/children.
    Why should we allow people from outside the EU to come here and get every thing they need while they live a life of crime.
    Why should the retirement age be increased when there are millions unemployed,It is a fact that I get a damn sight less than what the benefit system pays a couple with a family so where is the sense in raising the retirement age.
    If you are going in a think tank the main criteria is that you can think,SENSIBLY.

  28. Posted 28/02/2011 at 16:44 | Permalink

    I note Philip Booth conveniently EXCLUDES the heavily subsidised Freedom Pass allowing London Senior Citizens to travel free on Buses AND Trains AND Tube.

    The free bus passes allow pensioners who otherwise could not afford extortionate bus fares to be “socially included” . These passes also bring much needed revenue to the places visited using these passes. Many passholders are normally car drivers and using the bus therefore contributes to reducing the carbon footprint and emissions.

    Also coveniently ignored are the 8% increases in Gas and Electric charges.

    With the pension now being aligned to the CP Index and the near defunct interest rates on savings pensioners already face a decrease in real terms.

    As with the Government you are selecting an “easy target”, why do you not target why people such as bankers, Chief Execs of utility companies and many more already paid huge salaries then expect huge bonuses for just doing the job they are already highly paid to do.

  29. Posted 28/02/2011 at 18:33 | Permalink

    No doubt Philip Booth is on a huge salary we pensioners can only dream of and has a gold plated pension to olok forward to ,all no doubt paid for by the taxpayer. I get a small company pension which helps to keep my head above water and paid for it out of my wages when I was working but I still don’t have a luxurious lifestyle. I like every other pensioner, paid my taxes and NI contributions for 45 years. When I got made redundant at 60 my income was reduced by 70%. I still had to pay the full council tax as well as gas and electricity The pensioners in Ireland get £550 heating allowance and a free tv licence and passport at 66 What we get is a pittance in comparison. A lot pensioners are dead before they reach 75 which is the age we get a free TV licence at . When someone reaches retirement age they automatically take a huge cut in their income so from that day they are already suffering financially and feeling the pain and for Philip Booth to say we should be made to pay even more is a total disgrace. I hope his suggestion is consigned to the dustbin which is where it belongs We receive the lowest state pension in Europe as it is and what little extra we get is what we deserve.P

  30. Posted 02/03/2011 at 11:46 | Permalink

    It is now past the middle of the week, so where is Philip Booth’s anticipated response which he wrote last Friday 24th at 20.51 in which he said “I shall wait until early next week and respond to the various comments that are left over the next few days”? He should, perhaps take a little more time to realise the strength of feeling that his proposition has aroused. He should also recognise that we respondents on the web are just the tip of the iceberg, since the numbers of pensioners that have access to the internet are small in comparison to the whole. Having spoken to many over the weekend, they are appalled and even distressed that such a proposition should even be considered, especially among those who are experiencing increased hardship due to the rapid rise in their individual cost of living which is over and above the average due to the very nature of their constrained purchasing needs. Some of my friends suggested that once again, we pensioners are a “soft target”. Where is the Christian virtue in taking from the poor and the weak when the rich and affluent are the ones who should be carrying the can for getting us in this mess in the first place?
    It wasn’t pensioners who lent too much money, it was the Banks, it wasn’t the pensioners who claimed expenses by fraudulent means, it was the MP’s. Most of us are outside the circle of affluence, and therefore none of us should take the responsibility for the damage caused by those within that circle!

  31. Posted 02/03/2011 at 12:33 | Permalink

    Just received a letter in the mail this morning and guess what ! , I have now been informed that I shall be allowed to retire 6/11/2014 and as my birthday is the 15/07/1952 the goverment is making nearly 4 months pension off me as it used to be you retired on your birthday, Oh well this is just another sneaky backdoor cut. Shame we could not have the goverment cut down their wee perks , imagine that lot eating mince and tatties washed down with tea .
    How many more cut backs must the pensioners have , just to survive ?.

  32. Posted 02/03/2011 at 14:46 | Permalink

    @myfindhorn – I might add that though some things that may be unpalatable were suggested in the paper (and, malcray, I shall comment about that in a couple of hours – I have been doing little else other than reply to people’s letters etc in recent days: I am not complaining, but there is only one of me and I am ploughing through it all as quickly as possible) our main proposal (not mentioned in the press) was for a long-term fully contractual national insurance system so the government cannot do this sort of thing. My view about MPs pensions is that they should simply contribute out of their income to a defined contribution scheme like most other workers.

  33. Posted 03/03/2011 at 09:43 | Permalink

    Thank you for the various comments received on the IEA pensions paper. I said I would provide a comment which responded, as best it could, to as many concerns raised as possible.

    Let me start with the tone of the debate. There is a lot of abuse on this blog post and even that I have received by letter. I am not going to respond to this abuse but, instead, I will take as an example a comment by a minister which, I should imagine, most commenters were pleased to see. Steve Webb described the views of the authors of the paper as “loathsome” in a meeting in Somerset. Where does this get us in the political debate? Steve Webb supports government policy to raise pensioners’ fuel bills by an average of £150; when at the Institute for Fiscal Studies (which is to a large degree government funded unlike the IEA) he wrote a paper supporting VAT on fuel at the full rate (another £150 cost for pensioners). What if I described those views as “loathsome”? I believe that the savings I proposed should be used, for example, to pull poor people out of tax (see below) – he obviously disagrees. Perhaps I should describe his position (which would leave more poor people paying tax) as “loathsome”. Where would this line of argument (and all the other insults that are traded) get the debate? Nowhere. There are serious issues here. The implicit national debt being passed to the next generation is 500%-600% of GDP (and this is nothing to do with bankers). These serious issues deserve serious consideration on their own merits not insults.

    Secondly, let me move on to the headline we used about “sharing the burden”. Like any headline this did not cover the full story (see below). However, it is a matter of fact that when it comes to the cuts the old poor are being treated differently from the young poor and the old middle class are being treated differently from the young middle class (whether you look at benefit uprating, pensions versus child benefit uprating or move on to other issues such as student fees). Now, there may be valid reasons for this. But it is not “loathsome” to point this out. It seems clear to me that the reason for this choice by politicians is because of the weight of old people in the electorate (this has been clear since at least the 2005 election). The old are not seen as a soft touch by the government (as suggested above) – far from it. Indeed, it seems that the main Conservative Party policy at the forthcoming Scottish elections is to give pensioners (and only pensioners) a £200 Council Tax discount. Council Tax is a real burden for pensioners but the fact that under 40s cannot afford to buy a house is also a real problem. I think it can be seen that politicians are responding to the weight of pensioners’ votes. But please read on, because, though you may disagree with what follows, I think you will see that there is an underlying valid point…

    Thirdly, many of the correspondents have complained about the sneaky ways in which old people are having their incomes cut by the government. I entirely agree with you here. As the tax burden has got higher and higher the ways in which the Treasury has put its hands in your pockets has got more and more sly. The taxation of pension fund dividends from July 1997 is one obvious example (which will really damage the coming generation of older people) but there are other more recent ones such as the CPI indexing of certain benefits (and accrued public sector pensions). This should not happen. If the government wants to cut benefits by (say) 1% it should be brave and say so and not do it through the back door. I hope you might give me credit for being brave and saying so – I do not believe in these back door ways of reducing benefits and increasing taxes.

    And now to the main point…Every penny of the spending reductions that we propose would be used to finance tax reductions. The desire to balance these spending cuts was very clear in the press release. These particular suggestions for cuts form part of a bigger project which will yield very large proposed savings and very large corresponding tax cuts. Some commenters have suggested that pensioners do not pay tax and others have suggested that they need the benefits because the taxes they pay have increased so much (there is obviously a contradiction between those two views and the second is correct). All pensioners pay tax (even if below the income tax threshold). VAT and other indirect taxes probably take about 20% of their income (though that depends on individual spending patterns and the total level of spending). If you take account of the additional domestic fuel costs that the government is making you pay through its various green initiatives THEN THOSE COSTS ALONE WILL REPRESENT ABOUT TWO THIRDS OF THE WINTER FUEL ALLOWANCE – MORE FOR A BADLY INSULATED OR LARGE HOUSE by 2015. In another paper in this series we will propose abolishing those taxes because they are a particularly bad way to achieve “green” objectives. The cuts proposed in the paper would more than reverse the rise in VAT that has recently taken place.

    Clearly not every penny of the money saved by cuts to pensioners benefits would be used to cut pensioners taxes in these proposals but there will be more cuts that we will be suggesting to other areas of public spending (and, indeed, some of them are the cuts suggested to me in the letters I have received) which will allow much further tax cuts such as big cuts in VAT, energy costs (as noted above), fuel duty and an entirely new way of financing local government. I cannot say that every single pensioner would receive more in tax cuts than benefit cuts as we do not have the models to show that at the IEA, but it would come pretty close to that point. Poor pensioners would be protected by a much neater method of means-tested benefits than the current one (and no less generous).

    And this really gets to the root of the problem. The government is spending 53% of national income (and this is little to do with the bankers) and even after the cuts it will be 45%. Would we prefer it if we kept more of our own money in the first place or do we want money to be taken away from us, passed to another government department and then given back to us with conditions attached (in the case of bus passes) or if we fill in a six page form (in the case of Winter Fuel Allowance)? I believe that you should be able to keep more of your own money in the first place. You are entitled to argue the opposite but it is not “loathsome” (or worse) to take my position. These benefits are relatively recent (all post-1997) and they have been given in an era when taxes (including on the old) have increased dramatically. The benefits are very overt (which is why people protest) the taxes that finance them are very stealthy (which is why people do not appreciate it when they are imposed).

    Finally, people might legitimately complain about the headline on the press release (our decision) and the headlines in the media (not our decision). I do not necessarily expect journalists to read the underlying paper (and see it in the context of the others we are producing) but they might at least reach the point near the beginning of the press release where it said (in italics): “These proposals should be part of a more radical review of government spending than the one on which the government has embarked. It should be stressed that this review would lead to huge tax decreases – including tax decreases that would benefit the old, such as a large cut in VAT.” I do accept that we could have used a headline that went something along the lines of “Older people should pay less tax and receive fewer benefits” but then I can guarantee that the issues would have receive no airing in the media whatsoever. My view is that you should all have more money in your own pockets (along with everybody else) with the government taking less. It is possible to argue the opposite (in effect that more money should be taken in tax and given for benefits for particular purposes) but there is nothing loathsome, obnoxious and so on about my own view: I am sorry if you still believe that is the case.

  34. Posted 03/03/2011 at 09:53 | Permalink

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  35. Posted 11/02/2013 at 18:21 | Permalink

    “It is a matter of fact that when it comes to the cuts the old poor are being treated differently from the young poor and the old middle class are being treated differently from the young middle class (whether you look at benefit uprating, pensions versus child benefit uprating or move on to other issues such as student fees).”

    I agree, and see no reason why someone who has spent years on the dole should get a pay rise simply because they have reached a certain age without dying. Meanwhile the people who could be working, paying tax etc to help the economy have an income cut in real terms, have to pay bus fares to get to their job interviews, then go home to cold flat/bedsit which is rented from a private landlord because the remaining council owned properties are occupied by pensioners.

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