Kicking grandad

The Stupid Party’s plans to cut council tax for pensioners have been well dissected by Blimpish.

For me, though, they raise another question: why should we redistribute income to pensioners at all? I’m not sure we should.

Now, let me be clear here. I’m not arguing against the state pension, which is a form of forced saving rather than redistribution. What I’m interested in is special help to pensioners, be it lower council tax, winter fuel payments or the minimum income guarantee.

I don’t think there’s a case for these.

A few years ago, there was an obvious case for helping pensioners. They had made huge sacrifices during the war. And many had suffered from the 1930s depression. If they were adults, this reduced their earnings. And if they were children it might well have affected their nutrition, with adverse effects on subsequent human capital and hence earning power.

On these grounds, pensioners once merited help, and older ones still do. They were an unlucky generation.

But increasingly, pensioners are no longer these people. Today’s 65-year olds are a very lucky generation.

They went to school after the 1944 Education Act, but before 60’s liberals and Thatcher destroyed grammar schools. They therefore benefited from a golden age of schooling.

They entered the labour force in the 1950s, and had 20 years of full employment and rising real wages. By the time unemployment started to rise, many will have built up enough seniority to avoid “last in first out” redundancy programmes.

They had years of great stock market returns. Even if you had started investing at the peak of the market in 1972, you would have made a real return of 6 per cent a year since then. An investor starting today will be lucky to match that.

And on top of all this, they benefited from lower taxes in the 1960s; the Adam Smith Institute shows that tax freedom day back then typically fell a month earlier than it does today.

So, today’s 65 year-olds had great opportunities to get an education, work, save and earn a decent return on those savings. 

If pensioners are poor, then – and these figures (pdf) show that fewer and fewer of them are – it is not because they have, in aggregate, suffered hard times. Quite the opposite.

Old age is no reason to receive redistribution. It is a foreseeable event that people can prepare for. It’s the alternative to old age that comes as a shock.

Now, I’ll grant you that the state pension is a pittance. But a 65-year-old today has had 25 years – since the Stupid Party de-linked pensions and wages – to prepare for this. There’s no case for redistribution here.

And I’ll grant that pensioners need to spend more on heating. But working people need to spend more on transport – a need which falls after retirement - so this is no case for redistribution either.

Nor do pensioners have a claim to lower council tax bills. There is a good case for taxing housing – to encourage a more efficient use of the housing stock. If every single person rattled around in a big house, we’d need to concrete over even more of the country than fuckwit Prescott plans to.

So, why should we give pensioners special breaks? Some, of course, are poor through no fault of their own. Maybe ill-health or redundancy stopped them saving. But this is an argument for redistribution to people suffering these misfortunes, not to pensioners in general.

Others are poor because they were too feckless or incontinent to save. But why do these merit help? In particular, why do they deserve more help than we give to people in poor countries, who are poor through no fault of their own? And if they do, why postpone such help until they are old? And if people are too incompetent to run their own lives, why should we allow them to vote?

A more promising argument for redistribution is that I’ve misdescribed 65-year olds. They weren’t lucky. Real wages were lower in the 60s than now. We have benefited more from 40 years of investment and technical progress that they did. Maybe we should compensate them for the misfortune of being born early.

The problem with this is that pensioners don’t feel unhappy because of this bad luck. When they look back on their youth, it is usually with nostalgia for the good old days, rather than with regret that they didn’t have the internet or a larger capital stock to work with. Indeed, Andrew Oswald has found that older people tend to be happier than ones in their late 30s. (“Well-being over time in Britain and the US”, downloadable here.)

On welfarist grounds, then, we shouldn’t tax 30-somethings to help 60-somethings. Quite the opposite.

In fact, I can think of only one goodish argument for redistributing to pensioners, or at least to many of them. It’s that older women were victims of blatant sexism, which blighted their life chances generally as well as their earnings. Maybe there’s a case for redistribution to these as recompense for past injustices – analogous to the case for reparations for blacks, as argued by chaps like Randall Robinson.(Though it is older men - the main beneficiaries of sexism -  who should pay this.)

Although this is the goodish argument for helping (some) pensioners it is, of course, never uttered. The practical argument is simply that pensioners vote.

Which only goes to show that there’s an enormous gulf between justice and democracy, at least in the debased form in which it exists today.

Comments

[Dander]

There is a presumption in what you write that all people living in Britain over the last half century could have found jobs that would have paid them enough to make adequate provision for their retirement. But is this so? Will a market economy produce jobs paying enough to make such provision? This is not an anti-capitalist point. A 20-something in a job interview is going to discount his/her needs as a 70-yr-old. The prospective employer has every incentive to encourage short-termism in employees so that they accept a wage that seems fine for the here and now, but may be insufficient to fund prolonged savings.

[Monjo]

If people survived on a low-pay job they can survive on a small pension.
I was having similar thoughts sat on the toilet last night: we have a duty to support the young because we must give them an opportunity in life; we have less duty to the elderly since they have had their opportunity in life.
As ever S&M you do an excellent job on the economics of the issue. I was more concerned with it from my own 'philosophical' viewpoint. I considered the elderly women when brushing my teeth (Considering pensions on the toilet is one thing, considering elderly women is quite wrong!). If they were married they should be living off their husband's income; if they divorced, they probably took 75% of his wealth anyway; if he has died, they probably are amongst the legion of millionaire pension-aged women in the UK. Plus, we have had equal opportunity since say 1975, so for a woman of 65 she hasnt been dramatically prejudiced over her total working career.

[dearieme]

Hang on, I'm looking forward to my winter fuel payments: how else will I afford to jet off to Madeira in January?

[Gorse Fox]

Could I respectfully point out that the one thing that pensioners are limited to is an income fixed by the state, and the inability to supplement it further through work (after all they are retired!).
The iniquity of the system is that whilst the government condescends to increase the pension by some small amount each year, this bears no relation the degree to which council taxation increases. Therefore, pensioners become steadily worse off.
I am not a pensioner, but the logic of the proposal seems clear to me. Though the LD idea of a local income tax may be better still.

[Blimpish]

In recent years, the government's been significantly increasing the state pensions.

Council Tax is a payment-for-service just like any other - where that service expands or increases in inefficiency, the cost to the consumer goes up too. We should tackle the underlying causes of the increasing costs, not palliate its impact.

The Lib Dem idea is a bad one. First, because it would make residential property almost wholly untaxed (good dodge for rich people). Second, because we already have a marginal rate of 41% kicking in at less than double average earnings - let's not make it worse.

[James]

I'm worried for places like Worthing, where I live. If there is a preponderance of pensioners in a town, then the remaining younger people will have to pay more to cover the shortfall. This will drive young people, who are already loathe to stay because councils pander to the grey vote, away. Thus eroding the tax base further...

On the flip-side, perhaps councils would be encouraged to cater services more towards younger people and families so that they don't lose revenue. It's hard to get them to pay attention to decrepit playgrounds and dogsh** covered playing fields right now.

[Monjo]

I have a question about the 'grey vote'. We do not let children vote why? Is it because we consider them too young (implication: stupid) or is it because they don't pay taxes? Maybe we could apply the same rules to the over-65s, the unemployed, ex-convicts, and any immigrants?
[I am being half-serious, so any half-serious responses are most welcomed!]

James: if you worry about Worthing, give a thought to places like Frinton-on-sea! Brighton is the complete opposite, maybe Britain's "youngest" city.