Believe it or not, there are people in the British press who are genuinely arguing that this week’s Spring Budget “stuck two fingers up” to pensioners because the Chancellor decided to focus his efforts on tax cuts for working-age people, instead of throwing yet another bone to retirees.
From the Mirror to the Telegraph the headlines were the same - pensioners are the big losers of this budget, pummelled by stealth tax rises and neglected by the Chancellor. Let’s not mince words - this couldn’t be further from the truth. However, it’s useful to examine exactly how this false narrative came to be, why it isn’t true, and what it can tell us about the broader direction of travel in Britain today.
As I wrote in CityAM on Wednesday, this Budget represents a cautious step in the right direction against a challenging economic backdrop. In particular, we should celebrate the 2% cut to National Insurance which, combined with the 2% cut announced in the Autumn, will mean that NI has fallen to a third, from 12% to 8%. We should also welcome reforms to how Child Benefit eligibility is calculated, investments in public sector productivity, and the removal of stamp duty on shares.
Of course, it wasn’t all perfect. Our very own Maxwell Marlow has highlighted elsewhere the damaging effects of frozen income tax thresholds, and the Chancellor’s failure to deliver any substantive fiscal measures on housing. All in all though, this was a Budget characterised by modest measures designed to get more people into work, while improving the efficiency of the public sector and rewarding working-age people for their graft.
So who’s to blame for spreading the idea that the Chancellor has suddenly turned against the ever-reliable grey vote? This harmful misconception is, in no small part, the result of research from the Resolution Foundation and the Institute for Fiscal Studies. Both have pushed the idea that pensioners are the big losers of this budget, with the Resolution Foundation suggesting that households headed by someone aged 66+ “will see losses of £770 on average”, mostly due to the fiscal drag caused by frozen income tax thresholds.
However, they can’t seem to see the wood for the trees. This Budget maintained and extended a host of costly benefits for older people, which more than make up for any apparent losses.
As the Chancellor himself has rightly pointed out, those over State Pension age already benefit from not having to pay National Insurance at all. By default, their tax burden will already be 8% lower (12% lower prior to cuts over the past two fiscal events) than their working-age counterparts.
There’s also spending on public services like the NHS, disproportionately used by older people. Alongside £2.5 billion in additional NHS funding, the Chancellor has invested £3.4 billion in the process of NHS digitalisation, which will enable up to 200,000 extra operations a year. It is pensioners who will see the greatest benefit from this investment.
Then, of course, there is the public sector hydra known as the Pension Triple Lock. Since the Triple Lock was introduced in 2011/12, the cost of the state pension is estimated to have grown by a staggering £78 billion - that’s about the same amount as the UK’s entire corporation tax revenue in 2022/23. Across this Parliament alone, the state pension has risen by 31%.
In April, the state pension will again increase by 8.5% (more than double the current rate of inflation), representing a £900 income boost for pensioners. It’s worth reminding ourselves that the state pension is not means-tested, despite the fact that one in four British pensioners lives in a household with a combined wealth of more than a million pounds. Let me repeat that - depending on your definition, one in four British pensioners is a millionaire. They will all receive an additional £900 per annum from April.
From taxation to pensions to public services, this was a budget which works squarely in the interests of pensioners. To suggest that a 2% tax cut for working-age people means neglecting retirees is risible; with the cohort of people aged 22-29 now earning less than it did in 2002, it’s right that support is targeted to those earlier in their careers.
So why, despite all of this, are so many commentators eager to tell us that pensioners have been stiffed by the Treasury?
As is so often the case in politics, the fault lies with the politicians. Over successive Parliaments, politicians of all parties have propagated the view that the benefits enjoyed in later life are directly related to taxes paid throughout one’s career. We’ve all heard that slippery little phrase before - “I paid into the system all my life, and now I expect to get back out”.
Of course, in most cases, this simply isn’t true. The money that we pay in tax during our working lives does not sit in a hypothecated pot, to be drawn on in times of crisis. In fact, the money that many pensioners receive far outstrips their tax contributions - the average person born in 1956 will receive about £291,000 more in state benefits than they paid in across their lifetime.
Not only did favourable economic conditions in the 1980s and 1990s allow older people to build up assets which younger people can now scarcely dream of, but the state now gives them additional support on the questionable basis that they “paid in” to the system throughout their working lives.
Alas, common sense ceases to matter when the ballot box looms. Older people vote in far greater numbers than their younger counterparts, with 81% of older people expected to vote at the next election, compared to just half of those in their twenties. Governments must now contend with this ‘grey vote’. There is a resultant expectation that all major fiscal events must involve a confession of faith in the Baby Boomer orthodoxy, and a vindication of that faith through ever-greater public spending.
It would be far more sensible to recognise this expenditure for what it is - state assistance for old people. What else can we call money provided by the state with no expectation of returns, drawn from general taxation on working-age people?
If pensioners want to hold onto their state benefits - and yes, these are benefits -, they should celebrate the tentative steps taken in this Budget to incentivise work, reinjecting a modicum of dynamism into our sluggish economy. Covering the cost of these benefits will only be possible with a growing economy, particularly as the fiscal burden grows larger every year due to our ageing population.
More people working more productively means more revenue for the Treasury, and a greater likelihood that older people will continue to enjoy these favourable conditions. If our economy continues to languish in its current sorry state, beset by low growth and high taxes, it won’t be long before the bill simply becomes too large to bear.