Intergenerational Fairness in Government Policy

Baroness Goldie Excerpts

Thursday 26th October 2017 Lords Chamber

[Baroness Altmann (Con)]

My Lords, I too congratulate the noble Baroness, Lady Smith of Newnham, on securing this important debate. The issue of intergenerational fairness has been rising up the political agenda, and I find this trend deeply troubling. By pitting one generation against another, instead of generations working together and supporting each other, society is damaged.

First, like my noble friend Lord Willetts, I understand the concerns that young people express, particularly when it comes to housing, student debt and irresponsible credit card and loan practices. But those are issues related specifically to the housing market, the financial system and higher education. They are not really generational fairness factors.

The enormous rise in house prices across the UK has also driven up rents, which means that tenants of all ages have less disposable income for other expenditure. But that relates to the shortage of new homes and, to some extent at least, the Bank of England’s policy of quantitative easing, which was deliberately designed to inflate asset prices as an indirect means of stimulating the economy. Problems of housing affordability for younger people will not be most effectively solved just by giving young people more money to buy a home. In fact, such policies may further increase upward pressure on house prices. Increasing supply would be more beneficial. We are probably at the top of the housing price cycle. The ratio of house prices to earnings is clearly unsustainable, but it may not last. We have seen house price cycles before. Indeed, just because house prices have risen and many older people own their own homes does not actually improve living standards for older generations. They live in their homes and their income is not normally improved when house prices rise. The noble Lord, Lord Best, however, is right to focus on the need to encourage older people to downsize and free up family homes for younger people.

Another significant problem for younger generations is the sharp increase in the cost of funding higher education. Once more, that is not the fault of older generations, most of whom never had a chance to go to university—less than 10% of today’s retirees actually went to university. Older people are too often portrayed as undeservedly wealthy, having been lucky throughout their lives in ways that young people cannot hope for. But, quite frankly, I feel that such stereotypes are dangerous simplifications. There is an enormous range of income and wealth among pensioners. Lumping all those over pension age together and looking at their average wealth or income per person gives a misleading picture. Also, lumping the entire age group together is highly misleading. Most over-75s and certainly over-80s are not well-off at all. They live on low incomes with half or so needing means-tested assistance.

UK state pensions are among the lowest in the developed world. Pensioners overall are no more likely than other groups to be in poverty, but that is success and marks real social progress. It is not a signal that somehow we have done something wrong. In fact, pensioner poverty is most pernicious, because once a pensioner is poor they cannot normally hope to improve their future financial position. Younger people have their future career and earnings to look forward to, whereas pensioner poverty is most often permanent. However, the triple lock has been another example of a political construct that has become totemic and has proved damaging. I agree with my noble friend Lord Tugendhat that it may have outlived its usefulness, but it is also important to remember that the triple lock is rather misleading because the poorest pensioners are not actually protected and the triple lock gives much more protection to the younger, better-off pensioners than to the oldest and poorest, which is clearly the wrong way round.

Another factor that is too often overlooked is that young people are starting their careers and their earning years much later than previous generations did. Comparing today’s twentysomethings with those of prior cohorts is not quite comparing like with like. If young people today are starting work, say, five years later than was previously the norm, their income position should be compared with people five years older than them rather than of the same age. If the young also ultimately benefit from the extra qualifications, they should increase their earnings more as they progress through their careers and should not therefore stay behind previous generations. The best route out of poverty is employment, and we should congratulate the Government that employment rates for young people are around record levels with very low unemployment. Meanwhile, older generations are staying in work much longer than ever before. The numbers of older people in work are at record levels, as older generations keep contributing more to the economy.

I find it strange that there is so much concern about the so-called baby boomers having good pensions and owning more assets. Surely, in a societal sense, that is to be welcomed, partly because they are at the end of their careers rather than at the beginning or halfway through, but also because as more older people live longer, increasing numbers will need more money to support them through their expected extended later life. Extreme old age will increasingly become the norm rather than exception. More will need money to pay for social care, and if they have no money they will have to be supported by younger taxpayers.

We should perhaps be celebrating that today’s older people are better off than previous generations, while also encouraging those who can to earmark some of their money in case they need later-life care. I urge my noble friend the Chancellor to introduce measures that will address that, such as incentives to keep some of their pensions or ISAs or allocate a share of the value of their home to a fund that would be set aside for later-life care in case they need it. That would at last begin to bring in much-needed funding before the care crisis brings down the NHS and places ever more burdens on young taxpayers. It is also true that there is an intergenerational imbalance in pension coverage, but that is partly a function of the unrealistically expensive pension promises that were made by past employers, who did not anticipate the range of changes that have increased the costs of providing a final salary-type pension to around 50% of salary.

I caution strongly against pitting one generation against another. Older generations already do much to support the young. Society is a nation of generations, each of which needs to live together in harmony. The bank of mum and dad—and often the bank of grandma and grandad—is helping younger generations. Relationships between old and young people are so important, both in our communities and in the workplace. I urge noble Lords to be mindful of the need for intergenerational cohesion.

[Baroness Goldie (Con)]

My Lords, we are tight for time, so I ask your Lordships to pay attention to the seven-minute timetable, please.

--- Later in debate ---

[Lord Balfe (Con)]

My Lords, I also begin by thanking Lady Smith for a wide-ranging and useful debate. I am a member of silent generation; however, I am not a member of the silent party. One of the most astonishing things about the debate is the total absence of Labour speakers, apart from the noble Lord, Lord Hunt. It is not as though Labour has nothing to say on the subject. I would be interested if the noble Lord could tell us whether this was an instruction from the Whips—or is the Labour Party genuinely mute? I will try to make up for them by making one or two mildly radical suggestions.

First, we are told that pensioner poverty has halved between 1997 and today. That means there are still a lot of pensioners living in poverty. We should not forget that. Secondly, this intergenerational argument should not be regarded as an opportunity to bash the old. The basic problem is that the wage economy has collapsed in the last 15 years but the pensioner economy has been maintained thanks to the input of largely public money.

The great problem that exists between the generations, including this third generation, is that some of us are much better off than others, often because we bought our houses many years ago and were in defined benefit pension schemes if, as in my case, you spent your entire life in the public sector. I left school at 16. I did not have a single day’s unemployment until I retired at the age of 60. I did not have to sign on. I was in a number of jobs but they linked, one to the other. That is a quite different experience from today.

I shall make a few suggestions on having a slightly fairer taxation system for the elderly. The first concerns TV licences. In a couple of years mine will be free. Why should it not be a taxable benefit? I am not saying it should not be free for poor pensioners, but why not make it a taxable benefit so you declare on your tax return that you have a television licence, just as you declare you have a pension? The winter fuel payment is another. It is astonishing that, seven years into our Government, we are still defending what Labour did in creating a benefit that goes to millionaires, tax free. At the time I remember saying this was impossible. Gordon Brown had a very wishy-washy explanation as to why it was needed, but I still do not see why I, as a 40% tax payer, should get a benefit that is substantially more for me than it is for an old-age pensioner. You do not have to save the money; you could redistribute the winter fuel payment so the poor pensioner has more and the richer pensioner pays for it.

It is high time to look at the administrative costs, as well. There are nonsenses such as the £10 Christmas bonus, introduced by Barbara Castle, of blessed memory, 30 years or more ago. Some of these benefits hang around for ever, such as the 25p a week extra that I will get in my pension when I reach 80. All this has an administrative cost. We could look at that.

Reference has been made to the exemption from national insurance. If I am lucky enough to earn extra money on which I will pay tax, why should I not pay national insurance, when the noble Baroness who moved this Motion—who is also not in receipt of a bus pass—would pay? Yet, I could be lecturing, as I have, in the very same building she works in. We could be in the same classroom giving a talk to the same people—even that has happened—and we could receive cheques on which I would not pay national insurance and she would. Frankly, this does not make sense.

The old are healthier and they also live longer. They can cost more in end-of-life care, but there is a tendency for us to think that because they get old, they cost a lot more. In fact, most health expenditure is in the last 24 months of life. The two basic problems we have are, first, the rise in the cost of the NHS, which has always moved ahead of inflation—most of the savings the Government have made have been swallowed up in this. Secondly, we have to look at the fact that the elderly are not smoking or drinking as much, so they are not putting as much back into the Exchequer in excise duties. I am not suggesting they should, but the pattern of excise duties is moving.

I will say a quick word about the young. Earnings have fallen and housing is difficult, but, to echo the sentiments of some noble Lords, more needs to be done. Messing around at the margin with tax relief and other reliefs will only generate price increases, as, of course, has quantitative easing. The fact that mortgages are so cheap makes them much more affordable, which means house prices go up.

At some point we need to recognise that for the older generation, class continues to divide the income groups more than anything else. For every poor pensioner there is a rich pensioner, but for both there is a strong class factor. If you live in the north on a council estate and start work at 18, you are more likely to be poor. It is as simple as that.

My final suggestion is: when we look at pension ages, why do we not base them on years of national insurance contributions? Why do we not say that if you start work at 18, work for 45 years and pay into the NI fund, you should be able to retire at the age of 63? If you go to university and pay for 45 years into the NI fund, you would retire at 68. We know that there is a mortality differential associated with income and occupation. These are one or two of the things we should look at when we consider intergenerational fairness. It is a far more complex issue than many outside this House imagine.

[Baroness Goldie]

My Lords, I apologise for further interruption. We have a quite serious slippage of time. When the Clock shows seven, will noble Lords please terminate their remarks and sit down?