Intergenerational Fairness

Steve McCabe Excerpts

1st reading: House of Commons
Tuesday 28th February 2017 Commons Chamber

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

I want to avoid seeing this as an issue of young versus old. I am conscious that there is a huge variation in the incomes of pensioner households, with some relatively affluent and others struggling to get by. I recognise the dangers of too much means-testing among elderly people, and particularly the risk that it can lead to people going without despite genuine need and entitlement.

However, I am also aware that this is not a great time to be young. Average household income, which has been rising for every successive generation since 1910, has stopped rising for those born in the 1980s, who are the first generation to start their working lives on an income lower than that of the previous generation. This younger generation will also do less well on pensions, both through the lack of access to defined-benefit schemes and the age at which they will be entitled to a state pension. It is true that, as we have heard, auto-enrolment will help, but it is hardly generous, and it will require a steady rise in employee contributions over the coming years. I would like the Government to take a good look at pension tax relief. In response to the hon. Member for Weston-super-Mare (John Penrose), I would like to see what can be done to incentivise those on lower incomes and at the early stages of their working lives to save in a pension pot. That would be a better use of public money than a generous relief for those who have already built up a healthy and, in some cases, quite substantial pension pot.

We need to think about how hard it is for young people to get on the property ladder and the proportion of their already limited income that so many are forced to pay in rent and other housing costs. The Institute for Fiscal Studies reports that homeowners spend about 15% of their income on mortgage payments, which is about half the amount that renters are forced to spend in this country.

I was struck by a proposal in the report of a recent British Academy-IFS roundtable on intergenerational fairness, which suggested that one answer to the double dilemma of accommodation costs for the young and of the social care crisis would be to encourage a model of co-habiting with older people. That might provide benefits of increased companionship and new understandings between generations at a time when the idea of the extended family has all but ceased to be a feature of our society and so many people feel isolated. The arrangement could also afford a measure of care and have a positive impact on wellbeing. It might also help those who are property-rich but cash-poor. If costs could be set at a fair and realistic level, it might offer some hope to those whose accommodation costs mean that they have no prospect of saving to get on the property ladder.

I support the Chairman and other members of the Work and Pensions Committee in calling on the Government to come clean about their future plans for the triple lock, which I honestly do not think is sustainable. I do not want an election campaign to be fought on a false bidding war for pensioners, only to be followed by a harsh U-turn shortly afterwards, as we have already seen with tuition fees and expectations on social care.

I am aware that many pensioner groups will oppose what I have to say. I have already had a hard time from the West Midlands Pensioners Convention for being a member of a Committee that could dare look at this issue. I am also aware that Labour Front Benchers are currently committed to maintaining the triple lock for the whole of the next Parliament, but I ask them to look again and see whether there is a better way to both protect pensioners and hold the Government to account on their vague plans.

There are two problems with the triple lock. First, it has a ratchet effect, which means that it demands an ever greater share of GDP when we have seen no income growth in working-age households for the past 10 years. Secondly, the triple lock creates a trade-off that means that the state pension age will have to rise above 70, which means pushing it above average life expectancy in some of the poorer parts of the country. In some parts of Birmingham, average male life expectancy is already 70.4 years and healthy life expectancy is as low as 53 years. In many parts of the country, average life expectancy and healthy life expectancy are even worse. We have already seen the problems caused by the rising pension age for Women Against State Pension Inequality, a group that I think should get transitional help.

I wonder what the risks will be if we pursue a policy of an ever-rising pension age. A better alternative would be to link the state pension to average earnings, but with added inflation protection in periods where price growth exceeds earnings. I ask my party’s Front Benchers to think about that. As a politically acceptable sweetener for such a change, it might be worth considering replacing the hugely expensive 2.5% component of the triple lock with a pledge to set a different cap on care costs and more support for social care.

We have to accept that workless pensioner incomes—that is, those of people who are fully retired—have grown more rapidly than those of any other group since 2001. Today’s young workers are set to be net contributors to the welfare state over the course of their lives, while the baby boomer generation, as we have heard, will be net beneficiaries. I want honesty for the future, fairness for current and future pensioners, and sustainable and affordable plans for the challenges that lie ahead.