http://www.economist.com/news/leaders/21645192-britain-should-stop-subsidising-old-and-rich-expense-young-and-poor-granny
Intergenerational
fairness
The
granny state
Britain
should stop subsidising the old and rich at the expense of the young and poor
Feb
28th 2015 | From the print edition
[1] INVOKING the spirit of the Blitz,
Britain’s Conservative-led government says that, when it comes to austerity,
Britons are in it together. Yet the group born under the shadow of the
country’s wartime trials is largely exempt. Since 2010 the basic state pension
has risen by 16%—5% in real terms—under a formula that guarantees generous
increases whatever the economic weather. Pensioners also enjoy free TV
licences, free bus passes and a handout to help pay winter fuel bills. The
government even subsidises their savings, by offering bonds yielding 4%
interest—more than five times its own borrowing cost—exclusively to the
over-65s. And if the Tories are returned to power at the general election in
May, oldies can expect more of this largesse. On February 23rd David Cameron,
the Tory prime minister, promised to protect their handouts on the basis that
“these people have fought wars, seen us through recessions—made this the great
country it is today” (see article).
[2] That argument is economically senseless
and morally indefensible. Over the past five years, the average British
household has seen its income fall by about £500 as a result of coalition tax
increases and spending cuts. The average two-pensioner household has taken a
hit of just £23. Yet far from being the shivering, uncomplaining veterans of
Tory spin, its members more typically came of age in the easy-living 1960s.
Buoyed by generous pensions and decades of soaring house prices, the wealthiest
fifth of pensioner households enjoy average incomes well over twice the British
average: for such lucky wrinklies, the winter-fuel allowance is less an
inducement to turn on the radiator than an invitation to chambrer some decent
wine. And as more British home-owners approach retirement, the numbers of rich
pensioners will grow. The truth is Mr Cameron is motivated less by a desire to
uphold the dignity of age than to bribe pensioners—the Britons most likely to
vote Tory.
[3] Contrast their treatment with that of
younger Britons, whose taxes are paying for their pampered elders. Unlike state
pensions, working-age handouts have been squeezed. Child benefit, previously a
universal payment to parents, is now means-tested. The Tories have promised the
young even more austerity, by making them work for unemployment benefits—which
are already 21% less generous for the under-25s—and denying them housing
benefit.
[4] Transfers from young to old can be
justified, both because many of the old cannot work and because technological
progress means youngsters are likely to end up better off than their
grandparents. Yet today’s low-skilled Britons, unlike their grandparents, have
seen their incomes serially squeezed. At 14%, youth unemployment is high. And
for those without property to inherit, exorbitant rents and house prices—the
result of decades of failed planning—have dashed the dream of home-ownership to
which Britons aspire.
Tough
but fair
[5] Britain’s next government must redress
this imbalance, not worsen it, as Mr Cameron proposes. It should scrap the free
bus tickets and other pensioner bungs, which would save £3 billion. By
means-testing the state pension, it should bump up payments to poor pensioners
and gradually withdraw them from the richest ones. Many oldies would feel
aggrieved; the universal state pension has long been seen as a cornerstone of
the welfare state. Yet money is short, and the scale of today’s redistribution
from the poor to the rich is hard to defend. Moreover, reforming the pension
could help preserve a more cherished cornerstone. Cutting the state pension
bill by a fifth would save about £15 billion. That is about half the extra cash
the National Health Service will soon require—if it is to meet the steeply
rising demands of Britain’s greying population.
From the print edition: Leaders