Setting the young against the old is a smokescreen to protect the mega rich

Setting the young against the old is a smoke screen to protect the mega richThe House of Lords Committee report on “Intergenerational Fairness and Provision” recommends a redistribution of benefits from older people to younger people. Surely it is not an inter-generational issue; but one of confronting the widening income inequality and increasing poverty in our society?

At just 29% of national average earnings Britain has one of the lowest state pensions in the developed world, with much of Europe paying in excess of 90%, and there are 1.9m older people living in poverty many of whom were forced into retirement, pre 2011, and condemned to spending the rest of their lives in poverty.

According to Philip Alston, special rapporteur on extreme poverty to the UN, Government Ministers are in a “state of denial” about poverty. Quoting figures from the Joseph Rowntree Foundation, he said that more than 1.5 million people were destitute at some point in 2017, meaning they lived on less than £70 a week or went without essentials such as housing, food, clothing or heating. A fifth of the population, amounting to 14 million people, are living in poverty, Prof Alston said.

In contrast the pay of Chief Executives at businesses on the FTSE 100 index surged 11% on a median basis during 2017 while average earnings failed to keep pace with inflation, rising just 1.7% with inflation at 2.8%. Many of these Chief Executives have multi-million pound incomes. 

A consequence of this widening inequality is that there are now 3.9 million children living in poverty in the UK – an increase of 200,000 in just one year. The Government has focused on making work pay, but two in three children who are in poverty have a parent who is in work. Children brought up in poverty are less likely to do well at school, more likely to have health problems and have a shorter life expectancy.  

In 1997 Gordon Brown abolished the tax relief pension funds earned on dividends from stock market investment which sent many pension funds from surplus to deficit within a decade and led to the demise of many final salary pensions. In 1971 the index linking of public sector pensions changed from earnings to RPI and then in 2011 from RPI to CPI and more recently from final to average salary. Over the last ten years pensions index linked to CPI have increased by 26.6% when had they still been increased by RPI they would have gone up by 32.4%. Average earnings have gone up by 41.7%. 

Lord Trust attacks the “triple lock”, bus passes, TV licences and the “winter fuel allowance”. The “triple lock”, whereby the State Pension increases in line with prices, earnings or 2.5%, whichever is the greater, was a Liberal Democrat policy introduced by the Coalition Government in an attempt to restore the pre 1980 value, when Margaret Thatcher abolished the earnings link. One cannot reverse 30 years erosion in just eight years. Bus passes contribute to the economy in that they help combat social isolation and enable older people to undertake voluntary work. If bus passes were withdrawn Local Authority subsidy would have to increase to compensate and keep uneconomic routes open to help combat global warming.  

73% of older people said that the television was often their only form of company.

The “winter fuel allowance” helps reduce deaths from hyperthermia and winter pressures on the NHS. Rather than introducing “means testing”, which is costly to administer and degrading, why not add these benefits to the state pension which of course is part of one’s personal tax allowance and therefore taxable.

4/5ths of the expenditure of the NHS goes on older people, with a correlation between income and demand upon the NHS, and £19.6b was spent by treating malnutrition amongst older people in 2017.

Playing the young off against the old to hide inequalities and shield the super-rich is shameful. This is a rich and poor issue: not an old and young one.

You can read a longer version of this article here.

* Chris Perry is a former Director of Social Services who for the past twelve years has been presenting a weekly current affairs / campaigning programme on Express FM between October and Easter.

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29 Comments

  • David Evershed 7th May '19 - 12:00pm

    Younger people are less wealthy because they have not lived long enough to accumulate wealth.

    The best way to mitigate this is to have low taxes on income and less low taxes on wealth and spending eg Inhertitance tax and VAT.

  • Bill le Breton 7th May '19 - 12:04pm

    Mr Perry, quite right.

  • Peter Martin 7th May '19 - 12:06pm

    @ Chris Perry,

    “This is a rich and poor issue: not an old and young one”

    Even though I have more socialist inclinations than most on this blog, I do have to disagree with you about this. It’s really an ultra left argument. The idea that we can fund bigger state pensions or a better NHS or better social provisions, or whatever, by ‘soaking the rich’ doesn’t stack up. It’s just a matter of arithmetic. Even if you squeezed enough money out of them one year they’d have run out the year after! Sooner or later you’ll need to face reality.

    What we can ‘afford’, depends on the available resources in the economy. If we have enough people who are trained as teachers, or want to be trained as teachers we can have teachers. If we have enough car mechanics, computer programmers, aircraft engineers and so the same applies. Therefore ‘affordability’ has to involve not wasting anyone’s talents and making sure they are working in productive jobs. We don’t want them to be underemployed or unemployed. High productivity then justifies decent wages and salaries. Money is never a problem for a currency issuing government. Real resources are.

    Giving older people more options in retirement will help too. Often the choice now is between full employment for 40 hours per week and 48 weeks per year and full retirement. How about something in between?

    This is not to say we don’t bother taxing the rich or anyone else. We do. But its not because we ‘need the money’. We do it to reduce social inequality, at the same time creating a demand for the currency which gives it a value and prevents inflation.

  • Simon McGrath 7th May '19 - 12:21pm

    “A consequence of this widening inequality is that there are now 3.9 million children living in poverty in the UK – an increase of 200,000 in just one year.”

    No it isnt . Children are not living in poverty becuase CEOs earn too much

  • No David, young people are less wealthy because they can’t afford the house you bought at a much lower price and percentage of your wage when you where young. You also didn’t have to pay the rents they do.

    Could you have built your wealth with the following going against you, if cause not.

    London’s average asking rents have increased by 8.2% in the last year, with the average rental property in the capital now averaging a record £2,093 per month
    The 8.2% increase is the highest annual rise in London since Rightmove began reporting this data back in 2012, while average asking rents in London are up 2.9% on last quarter alone

    https://www.rightmove.co.uk/news/rental-price-tracker/
    You had the best of times, please don’t squeal tis the fault of the young, tis the fault of us that pulled up the ladder for those younger than us. I accept all baby boomers didn’t but alas collectively we did.

  • If we are going to defend the “triple lock” on pensions we should have an aim. It could be to increase pension above the increase in earnings over the long term to restore the state pension to a ratio to average earnings which we had in the past. Is 1980 the correct year? It is being said that the new state pension introduced in 2016 has restored the level of state pension in relation to wages. Is this true? What year is being used? Is it also 1980?

    I can see no justification for why someone aged 74 has to pay for their TV licence but someone aged 75 or over does not.

    I often wonder how bus passes affect the financial viability of bus routes. I would think it would work in the oppose way to the way Chris Perry describes. I imagine that bus companies do not allocate funds from the free bus passes to the routes being used by the people who have the bus passes.

    The winter fuel allowance could be ended for people who retire in the future as cold weather payments apply to pensioners who receive Pension Credit assuming that people can claim Pension Credit if they don’t receive the full “new state pension”. However the Guarantee Credit for pensioner couples is too low and needs increasing to £271.58 from April 2019 (currently £255.25 a week).

  • House prices are driven by financialization. Not by mean old baby boomers. Banks like to lend money on property. This creates an emphasis on equity. The more equity you have, the more you can borrow, the more you can borrow, the more equity you can accumulate and the more you can borrow. The banking collapse happened when this Ponzi-like cycle was exposed to reality in the financial crisis of 2008. QE went to the financial sector because things like the cost of housing do not just reflect the cost of living, but of future potential equity. No one could afford to let it collapse. You can see a similar pattern with student loans. Universities expand as student debt increases. But it all has to be guaranteed by public money. Economic liberalism creates debt and profit at the same time. This is why house prices keep going up despite endless building programs, near zero interest rates and more or less stagnant wages. The nature of the market is speculative rather than wise. Age has nothing to do with anything beyond the simple fortune or misfortune of being born before or after the full consequences of the financialization of the economy became apparent.

  • An absolute key message is that an attack on the state pension is an attack on the young non-pensioners.

    And the media sadly do not report it as such. And we should complain when they don’t.

    Younger have to put their income aside today to make up their later pension shortfall if it is reduced or the triple lock abandoned.

    Indeed more than that the triple lock is a policy for the young as it ensures a real terms increase in the pension (they go up by earnings – essentially GDP growth rather than inflation) more than the old.

    I see the benefits – bus pass, TV licence, winter fuel payment – as making up for, as the article points out, a very poor state pension by European standards. And we should resist attacks on them.

    The problems with housing are difficult ones.

    One of the solutions I think is to address supply and demand. If you fly over Britain, you see that it is full of green space.

    And I think one of the solutions is to create more market new towns.

    Perhaps with a high degree of “common community ownership” from some of the ideas we have had in the past.

    We also and it is difficult need to look at issues around the greenbelt around London. And a stronger regional policy so that not everyone wants to live in the South East but also where there is a bit more space!

  • Peter Martin 8th May '19 - 8:03am

    @ Glenn @ frankie, @ David,

    House price rises have been an integral part of the economy for the past 30 or 40 years or so. It’s tempting to solely blame the banks, but there is a wider issue.

    The economy works by ensuring that nearly everything that gets produced gets sold. For everything to be sold requires that there is sufficient buying power in the economy. Up until about the late 70s, and as production increased, real wages would also increase to maintain that buying power. The snag with this, from the POV of the ruling class (if you’ll excuse the Marxist terminology) is that it depresses their profits.

    So what to do? We can imagine some bright spark saying ‘How about encouraging everyone to borrow more? They’ll end up spending the same amount of money and that way we won’t have to pay them so much?’ Was this all a cunning plan or did they just stumble into it by accident as a consequence of ‘monetary’ policy? You decide.

    The upshot is that the extent of private debt is now huge. Largely fuelled by lending on tangible assets like housing. The good thing is that we’ve come to the end of the road now. Interest rates can’t be lowered any further to stimulate the economy. The bad thing is that we have a property bubble. It is good that it looks like it is slowly deflating. However if we have an economic crisis then that will crash the property market too. Actually it probably the other way around. Its the crash in the property market which will cause the economic crisis, because there is no sense in borrowing money to buy into a falling market. The economy still needs us to borrow to create sufficient aggregate demand. When the borrowing slows then the economy slows too.

  • Peter Martin
    I thought I was more or less saying that. The cause being the financialization of the economy in the 70s-80s. I seem to remember that during the 90s it became very fashionable to see increased private borrowing as not being a problem. Shrinking the state simply means private borrowing is increased, but since incomes are pretty stagnant and job security less certain public money ends up having to guarantee the loans anyway. The myth is that the public sector is inefficient and the private sector is innately good. But QE and so on show this to be somewhat faulty. More building will not solve this because it is not driven by demand but by profit . Plus it’s environmentally ridiculous to believe you can keep flattening ever more areas of the countryside and somehow be green at the same time.

  • I’m afraid you have both missed the elephant staring you in the face. House prices and rents are driven by a lack of supply and a major reason for a lack of supply is there is no social housing being built. Build more social housing, you address supply, you drive down rent and effectively you drive down house prices. A lower cost of housing releases people from poverty and makes it easier to move, the downside is it means my house is worth less (now I( can handle that, but many can’t, hence the reluctance to address the problem).

  • As to building on Green spaces, sometimes you have to, but again it is taking the easy option, there is plenty of brown field sites, but that costs more to build on so developers would rather give it a miss and build on nice green fields. Perhaps a policy to incentivise brownfield build and tax greenfield is called for. I may be wrong but keeping people in appalling housing doesn’t sound very green to me, but I accept some people think that is a price worth paying top keep their little village little.

  • Peter Martin 8th May '19 - 10:46am

    @ frankie,

    “House prices and rents are driven by a lack of supply…..”

    Yes that is one factor. Another is the level of interest rates. You may think the older generation had it easy, but in the early 80s mortgage interest rates were 15% plus. The mortgage took up more than half my income, at the time. I was the sole breadwinner we were’t as well off as you’d like to think. Naturally prices are lower when rates are higher.

    What Glenn refers too as the financialisation of the market can only work if prices keep rising. They have to rise to keep everyone borrowing ever increasing amounts to get in on a rising market. So the PTB don’t actually want house prices to fall by too many being built, or the demand for them falling too low.

  • Peter Martin 8th May '19 - 10:59am

    @ Glenn,

    “I seem to remember that during the 90s it became very fashionable to see increased private borrowing as not being a problem”

    Some economists still think that! Their argument is that it’s just a asset exchange. What they fail to see is that the reason for borrowing is to be able to spend. That extra spending does have an effect on the economy. Firstly as a stimulus then as a depressant as the effects of the spending wear off and the effects of the extra debt kick in.

    Whoever designed the rules of the eurozone must also think along the lines of public debt = bad, private debt = good or at least it is economically neutral. There are lots of rules in the EZ to limit Govt borrowing but no rules at all on private borrowing. So when the private sector was borrowing before the 2008 GFC the EZ did OK.

    But it’s not doing OK now!

    PS I’m not disagreeing with you. Just maybe giving a slightly different angle on the same problem.

  • Peter Martin
    What I meant by demand is need. Clumsy phrasing but demand is often confused with need(including by me). The demand for things can rise without any pressing need. My argument is that if you built lots more houses, in the present financial climate, the price would not drop because the demand is more geared towards property as an asset than it is to finding a place to live. Rather than let the crash of 2008 correct unrealistically valued property QE stopped lax lenders and unwise buyers taking the hit. Now, no one can afford to let the market lose value because it’s too important to the economy. What is they used to say? Too big to fail.

  • nvelope2003 8th May '19 - 11:48am

    The inadequate funding of free bus passes has resulted in the closure of bus services, particularly in rural areas. On routes mainly used by the elderly the income from the Government and the local authority is often inadequate to maintain the service and there is often no money to provide a subsidy because so much has gone to pay for free passes so the route is withdrawn. There have been cases where a weekly bus route carrying 40 passengers has been closed because 90% of them are using free passes. In some cases fares have had to be raised for those who have to pay – often poorer people – as the payments for the free journeys are based on the normal fare.

  • We should be more aware of the problems caused by migration from poorer areas to richer areas. In the UK the pull of London and south-east England. I would expect having regional minimum incomes at 70% of each region’s medium earnings would encourage business to be based where wagers are lower. Using 2018 wage figures this would mean a minimum wage for the North East of £9 an hour, South East England £10.44 and London of £13.08.

    I don’t think we specify how many new houses for sale we want to be built each year. However, as a party we do recognise there is a shortage of homes and have a policy of building 100,000 new social homes in the fifth year of a Liberal Democrat government. Shelter state that we need 3.1 million new social homes to be built over the next 20 years. I advocate changing our policy to building 99,000 new social homes in year 4, 104,000 in year 5 rising steadily to 167,000 in year 14. The aim of the policy is to end homelessness not reduce house prices.

  • Michael BG
    Most of the homelessness is driven by high cost and austerity policies, not lack of availability. A common cause is the introduction of council tax contributions for people on benefits. The court actions rack up debt very rapidly resulting in evictions.
    Also If you look at the more obvious visible homelessness you will see a lot people with mental health issues and various addictions. If you give an addict a choice between paying council tax or rent and their addiction they will spend on the addiction. Universal benefit exasperates this by putting a lump sum in the hands of people with serious substance problems.

  • Innocent Bystander 8th May '19 - 1:22pm

    Michael BG,
    ” I would expect having regional minimum incomes at 70% of each region’s medium earnings would encourage business to be based where wagers are lower. ”

    This process has been underway for some time. Preferred destinations have been Asia and Eastern Europe. I am confident your proposals will get rid of the final traces of “business” altogether.
    What then?

  • Glenn earlier you have stated that demand for housing is greater than the supply. Building an extra 3.1 million homes will increase supply, but what I am not saying is that it would also lead to decreases in house prices. The 3.1 million social home need is not my figure it is Shelters.

    For the year 2017/18 only 37 local authorities out of 326 have local Council Tax Support schemes which match the old national Council Tax Benefit scheme which was abolished in 2013. 277 have a minimum payments for those receiving out of work benefits and 16 have removed or reduced the second adult rebate (https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06672#fullreport). I have requested that party policy includes the restoration of the old national Council Tax Benefit scheme.

  • Michael BG
    That is not quite what I said. The point I’m making is that “the housing crisis” is not driven primarily by need. Where are these extra three million homes going to go and what happens if the population projections are wrong? Forgive me for saying this but Shelter is a homeless charity and is possibly vastly over estimating need. Ian Mulheirn is worth Googling on this.

  • Jayne Mansfield 8th May '19 - 2:41pm

    @ Chris Perry,
    Well I agree with you, but the Liberal democrats don’t have a clean pair of hands when it comes to diverting attention away from who is responsible for the widening gap in our society between rich and poor , preferring to divert attention in a divide and rule generational conflict of interests.

    As a former Director of Social Services , I am afraid that you fall into the one of the
    currently contemptible classes, ‘the expert’. Therefore what would you know about pensioner and childhood poverty and that dealing with both is not an either or, and that the real divide is between rich and poor?

    Politicians have been content to watch house prices reach sums that are unaffordable to people given their wages. Back in the day, house prices reflected the incomes of those who lived in the area. Perhaps the resident economists could explain why that is no longer the case if there is really is a functioning house market rather than pouring scorn on old people, some of whom have been beneficiaries of political policy decisions, some of whom have certainly not.

    As someone who has been healthy all my life, still happily pays taxes and is is extremely concerned about child poverty and the effect it has on the developing brain and life chances, I do not think it unreasonable to also fight for the right of vulnerable pensioners to a better deal, one that will be beneficial to those who are yet to grow old.

    A civilised society cares for its vulnerable at whatever stage of the life cycle they are at. I am heartedly sick of the portrayal of all old people ( baby boomers particularly ) as though they are all living of the fat of the land thanks to house price inflation that, if they own a house, they had no control over.

  • There is plenty of land in the UK. Only about 6% has been built on according to 2012 figures (this figure includes gardens as being built on but not parks etc.).

    Shelter using government figures for 2017 state there were 1,157,044 households on council waiting lists across the UK.

    My plan is to build the following:

    First year 40,000
    Second year 73,000
    Third year 89,000
    Fourth year 99,000
    Fifth year 104,000
    Sixth year 110,000
    Seventh year 116,000
    Eighth year 122,000
    Ninth year 129,000
    Tenth year 136,000
    Eleventh year 142,000
    Twelfth year 150,000
    Thirteenth 158,000
    Fourteenth 167,000

    By year eleven 1,160,000 new social homes will have been built, but over those 11 years more people will have been added to the council waiting lists. Once we have reduced the housing waiting list I would be happy to reduce the number of new social homes being built to the net number of families which are predicted to need a new social home next year.

  • Peter Chambers 8th May '19 - 9:54pm

    Urbanisation is a complicating megatrend. Densification is turning out to becoming a think. Those speculative suburbs and exurbs that require a car will become less attractive as more people cannot afford cars, live in cities and the fossil fuels run out. As some people note, it is very much cheaper to service an urban population than a rural one. This is contributing to the Left Out.
    Please consider carefully before using public money to drive a building programme. Where do you want to put the resulting units?

  • Peter Chambers did you not read only about 6% of the land in UK is built on. 12% of 6 isn’t even one. Building 3 million new homes will not increase the amount of land built on by 1%.

    If you don’t want to build my 1,160.000 new social homes for the 1,157,044 households on council waiting lists across the UK over 11 years what should we do with this growing number of people who want a social home but can’t have one because there are not enough of them?

  • Christopher Perry 9th May '19 - 11:18am

    Thank you for sending the figures on which the House of Lords Committee on “Intergenerational Fairness and Provision” based their recommendations. Have these figures been adjusted for the number of people in each age band excluding children?

    Surely “private pension assets” cannot be regarded as wealth as they represent advanced income? The average retirement is at least 20 years during which time earnings are likely to have doubled. So if you divide the average pension pot by 30 and add on the state pension of £8,315 it will give you the average pension income which is likely to considerable less than the average national earnings. And it must be remembered that there is wide income inequality amongst the retired population, which boosts the average, with 1.9m older people living in poverty.

    “Property Equity” is to be expected as by enlarge, but not all, older people will have paid off their mortgage. Hence the phrase “income poor, capital rich” and the increasing use of “equity release” which will hit the inheritance of the next generation.

    And again one would expect the older generation to have more “Other Financial Assets” as they have a lifetimes savings. And, of course, the mega rich, to whom I refer, tend to be in the older age group. People tend not to get multi-million pound salary’s or multi million pound bonuses during the early years of the careers and those with inherited wealth tend to get it during later life.

    Not sure what is meant by “physical assets” but again the “mega rich” tend to be in the older age groups as do those with inherited wealth. By en large older people tend to have paid for their cars and keep them longer whereas younger people will tend to have newer better cars but on hire purchase or lease.

    Clearly this is not an inter-generational issue but one of the increasing income inequality and growing poverty in our society as per my article.

  • “Setting the young against the old is a smoke screen to protect the mega rich”

    I imagine that would sound more convincing if it was not the start of an article wanting to increase spending on the old, and only on the old. It is certainly not an article that cares about the young.

  • Matthew Huntbach 10th May '19 - 3:46pm

    House prices are whatever people are willing to pay for them. Nowadays, most people are using money gained from inheritance to help buy houses, either directly or through “the bank of mum and dad”. So it’s no longer the case that house prices are set just by how much average income can be turned into mortgages. Inheritance means house prices are pushed up by house prices being pushed up. A never ending circle pushing them up and up, and pushing into desolation those who aren’t going to get inheritance.

    In the old days when council housing was available to anyone, that helped limit house price rises, as people wouldn’t be forced to pay high prices if instead they could get council housing. So the abolition of council housing as an alternative for all has also contributed to house prices just going up and up.

    Raising inheritance tax would be good, it would bring house prices down, and the money raised by it could be used to give better care for old people. However, I find it’s very hard to convince anyone of that. People say they fiercely oppose inheritance tax because they want their houses to go to their children. So in practice they’d rather their own children find it impossible to get houses when they most need them – when they are having their own children – with average age these days meaning the inheritance will only come when the children themselves are getting old. Young people also don’t seem to get this point.

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