Article by Philip Booth in the Yorkshire Post
Much-needed reforms in areas such as pensions are likely to be thwarted by the sheer weight of the grey vote while policies will be adopted that lead to far more government resources being allocated towards older people. The grey vote will mobilise and become increasingly important.
It might be thought that we need not worry about the ageing of the electorate because we can assume that voters will not tend to vote in their own financial interests but, instead, vote according to strongly held political principles or in the “general interest” of society.
Unfortunately, that is not true. Although people vote different ways for a whole range of reasons, the principled or habitual Conservatives tend to cancel out the principled or habitual Labour supporters, leaving interest groups with significant power at the ballot box. Indeed, theory and evidence suggests that the old are an especially powerful interest group at elections.
Their specific interests, as far as government policy is concerned, are relatively focused – on issues such as pensions, long-term care and health.
Younger people tend to have a much wider range of interests when choosing how to vote, such as tax levels, education, regulation – especially for the growing number of young self-employed – and housing.
Politicians are already responding to demographic pressure from the ballot box. The 2005 election was notable for the fact that the major political parties had few explicit promises.
However, there were particular, and sometimes bizarre, pledges to older people, in the party manifestoes. These included proposals to exempt the old from increases in specific taxes, such as the Council Tax, provide the old – whether poor or not – with free bus travel, and re-link pensions to earnings.
In the recent past, there has been significant redirection of government spending from the young to the old. For example, the young have seen a reduction in support for higher education and the old have been given a significant increase in welfare benefits.
Changes to taxation have also hit the young hardest, with the married couples’ allowance being removed for young people but retained for older people who surely need it less. Recent changes to state pension rules will remove contracted-out rebates from young people and use them to pay increased pensions to those already retired.
Projections suggest that the proportion of voters over age 55 will rise steadily to over 50 per cent in 2050. More alarming still is the tendency of the young not to vote. If allowance is made for age-related differential turnout, the proportion of active voters over 55 will be 50 per cent within 12 years and nearly 60 per cent by 2050.
Immigration will not get us out of this hole. The number of immigrants is small relative to the population as a whole and they have a tendency not to vote, even if they are allowed to do so – indeed a high proportion of immigrants, especially from Central and Eastern Europe return to their country of origin.
Based on the same projections, the average age of active voters will rise to 58. As the electorate ages, more voters are in the situation whereby they will benefit quickly from an increase in state pensions yet only have to make a few years of the requisite higher national insurance contributions. The financial gains to the average voter from increasing old age pensions are increasing rapidly.
Serious cross-country research has shown that, for every year by which the average age of voters increases, government spending on pensions increases by 0.5 per cent of GDP. This would translate to an increase in pension spending of £45.5bn per annum in the UK over the coming generation.
Indeed, the perfect storm is brewing. Evidence from many countries is clear. As the population ages, older people use the ballot box to transfer resources to themselves from the younger generation. Young people have much less incentive to vote and are forming a smaller and smaller proportion of active voters.
The outlook will be very difficult for any party that wants to reduce public spending in general, and it will be just as difficult for parties to resist transferring economic resources from the young to the old.
The only way of stopping this tendency is to have a completely new pensions settlement whereby the state-scheme element is smaller and is based on a fully contributory basis, where the pension benefit earned is fixed in the year it is earned. Unfortunately, under the pressure of an ageing electorate, policy is moving in the opposite direction.
Professor Philip Booth
is Editorial and Programme Director at the Institute of Economic Affairs.
New Perspectives on the Economics and Politics of Ageing
, Economic Affairs, Vol. 28, No. 1.
The Way Out of the Pensions Quagmire by Philip Booth and Deborah Cooper.