Don’t attack the baby boomers

This is the fourth in a series of posts on what sort of welfare state we might want. The first can be found here, the second here and the third here.

When I wrote about tax credits a couple of weeks ago I was too lazy to search out the latest figures on the breakdown of welfare spending and used some older figures I dug out in 2012. A few days later I discovered that the Daily Mirror had done the job for me here.

It compares the spending on the top seven categories of welfare spending of which the five largest categories are:

  • £22.9 billion on Housing Benefit;
  • £25 billion on Working Age Tax Credits;
  • £80.5 billion on State Pensions;
  • £13.3 billion on Disability Living Allowance; and
  • £9.3 billion on Employment Support Allowance (ESA).

The news story to which this information is attached concerns the government’s plans to cut back the level of ESA (formerly Incapacity Benefit) paid to disabled people from £101.15 a week to £75.40 a week, just above the level of the Job Seeker’s Allowance (JSA) paid to the unemployed. (It should be noted in passing that the total amount of JSA paid out is too low for it even to feature in this breakdown.)

The main message of the article is that it is disgraceful to pick on disabled people this way. Despite the fact that the Mirror is traditionally a paper that supports Labour, however, it does not conclude from this that cuts should not be made. No, the burden of the article is that the savings should be taken not from disabled people but from pensioners. To quote:

‘Cutting Employment Support Allowance would save the government £2.4bn but at the cost of some of the UK’s most vulnerable people. But it leaves the biggest items on the welfare bill untouched. That’s pensions.’

Leaving aside the fact that many disabled people are pensioners, and vice versa, what is most striking to me about this conclusion is that the author makes absolutely no mention of  the second-largest component of welfare spending: Working Age Tax Credits. Nor is it ever suggested that it might be possible to raid this pot rather than the pensions one.

At the risk of repeating what I have written earlier, I feel it is necessary to reiterate that there is a fundamental difference between benefits like ESA and pensions, which accrue to individuals, and tax credits, the benefits of which accrue, not to workers but to cheapskate employers who pay wages that are too low to survive on.

The Mirror appears here to have internalised, completely and unquestioningly, the neo-liberal logic that plays one section of the population off against another whilst leaving unexamined the ways that this is in the interests of companies.

The elderly form a large and growing portion of the UK population. According to official UK statistics (OPCS estimates) in mid-2013 there were 14.7 million people aged 60 and over and 11 million aged 65 and over (out of a total population of 64 million) and there are now more pensioners than there are children under 16. It is predicted that the proportion of people over 60 will rise from the present 23% of the population to nearly 29% in 2034 and 31% in 2058.

Small wonder, then, that the pension bill is a prime target for those wishing to cut public expenditure. And right now the ground seems to be being prepared – with a vengeance – for future cuts. Several inter-related themes are recurrent in the popular discourse but they add up to a general message that the current generation of people retiring from the workplace are in some way privileged, and that these privileges are gained at the expense of other groups in the population: the disabled (as evidenced in this Mirror article) or, evenly more commonly, the young, including their own children.

One common theme is that the baby boomers’ pensions are being paid by those ‘hard working taxpayers’ who feature so prominently in the rhetoric of the Labour Party as well as government propagandists. Actually this misrepresents the reality to quite a considerable extent. During the 1950s, 1960s and 1970s, when most of the current crop of pensioners entered the labour market, the UK pensions system was still as it had been established under the 1946 National Insurance Act: National Insurance contributions were paid by those in work, and their employers, into a common pot from which unemployment benefit, sickness benefit, retirement benefit (pensions) and other benefits were paid. Pension coverage was not universal (married women and some self-employed workers were excluded from it) but the principle was that everyone contributed to a system from which everyone then benefited. The baby boomer generation thus spent the first two, three or even four decades of their working lives contributing to the basic state pensions of the older generation that preceded them. Some were, of course, also enrolled in employer-provided pension schemes which provided additional income in retirement, but by no means all (in the case of women working part-time and people working for small companies, only a very small proportion). Over the ensuing decades a series of changes placed pension schemes more and more into the hands of private providers and shifted the logic from one whereby people currently working paid for the pensions of their elders who were concurrently drawing pensions to one where people working paid for their own pensions in the future, a principle whose most recent formulation was in the Pensions Act of 2008 with its ‘defined contribution’ principle that says whatever the ‘jobholder’ puts in, he or she should then take out. This is quite contrary to the principle ‘to each according to  need, from each according to ability’ that underpins most socialists’ idea of what a welfare state should be about. It also strays away from the idea that contributions into a common scheme should be obligatory, a principle which even Winston Churchill recognised as necessary (in relation to unemployment insurance) because if it were not compulsory for everyone to pay into the system then only the bad risks would take out such insurance, leading to the failure of the whole scheme.

The baby boomers have, in other words, being paying into the system throughout their working lives, both in the form of National Insurance Contributions and in the form of Income Tax, though it is only in the latter part of their working lives (and in the case of many women and self-employed people, hardly at all) that many have been paying into their own private pension pots. Contrast this with the companies who benefit from the tax credits (which the Mirror thinks should not be touched) many of which are registered in tax havens and pay little into the public purse.

A second common theme is that the baby boomer generation have benefited disproportionately from the rise in house prices and are occupying high value properties that would otherwise be available for young people to live in. They are often portrayed as selfish squatters.

Again, let us leave aside the rather obvious point that in many cases young people, in the form of their own children and grandchildren, are already living with them in these properties, albeit perhaps sometimes with all parties wishing that they had a bit more privacy and control of their living space. There are some other myths here that need debunking. A few facts about the history of housing in the UK* may help here. During the 20th century, owner occupation grew from 10% of homes to 68%, with most of that increase taking place in the last four decades of the century (it actually fell between 1938 and 1951). A high proportion of the rented accommodation (a majority from the 1970s onward) was in housing owned by local authorities or (from the 1980s) housing associations. In the 21st century some of these trends have reversed a little, with a resurgence in the role of private landlords, so that by the 2011 census the breakdown was: 7.2 million homes owned outright, 7.8 million owned with a mortgage, 4.2 million privately rented and 4.1 million socially rented (of which 2.2. million were from local authorities and 1.9 million from other social landlords). Nearly 70% of homes, therefore, require the payment of either rent or mortgage to secure ongoing occupation. If the residents cannot pay these, they will be booted out.

The majority of the baby boomer generation were brought up in rented accommodation and started their working lives paying rent.  Some, but not all, switched to paying mortgages when they could afford to do so (often driven as much by fear that rents were becoming unaffordable as by the desire for the proverbial ‘home of one’s own’). Those who chose to acquire mortgages had to sacrifice a considerable chunk of their incomes to pay them off. (Let us not forget that for every pound of the purchase price of the property you pay off with your mortgage you pay at least as much again to the bank, building society or mortgage company that lent you the money to buy it with). Except in a minority of cases where properties were inherited, the properties these baby boomers now own were thus anything but a windfall (except to the moneylenders). Like their pensions, they were paid for from the wages of a working lifetime.

It is certainly true that many of these properties, including the former public housing that tenants were encouraged to buy from the 1980s onward, have increased enormously in value. But let us look at what, precisely, was going on when the Thatcher government decided to sell off the cream of Britain’s public housing stock. First of all, let us remember that most this housing had already been amortised. In other words, the initial cost of  building it had already been recovered. If the logic of the spirit in which welfare states were ostensibly set up had been followed, the rents of these publicly-owned homes should have been very low. If there was no need to make a profit from them, all that the local authorities who owned them should have needed by way of income was enough money to cover the costs of maintenance and repairs, and a contribution towards the cost of building additional new housing. So when these homes were sold off to their tenants, they were in effect being asked to buy something that was already publicly owned and paid for. And since they had to get a mortgage in order to do so, half of what they paid was in effect a gift (in the form of interest payments) to the financial services industries which were such strong supporters of the Thatcher Government, as well as beneficiaries from its policies.

But, I hear you think, the people who bought these properties nevertheless benefited hugely from doing so, didn’t they? Well, perhaps some did. But it is interesting how many people who were not former tenants did so even more. A surprisingly high proportion of former council flats have ended up in the ownership of private ‘buy to let’ landlords, including a number of Tory MPs (most notoriously Richard Benyon who purportedly collects £625,000 per year in tenants’ housing benefits). But even when, after years of paying off their mortgages, people have managed to remain in possession of these, or other properties, do they really get to leave them to their children as those enticing promises led them to believe? The answer is only yes if they are fortunate enough to die suddenly. Because of the pernicious distinction that has been drawn in the neo-liberal welfare state between ‘treatment’ (which, although increasingly narrowly defined, is still provided free by the National Health Service) and ‘care’ (which most emphatically is not), the chances are very high that the house will have to be sold off, either before or after death, to pay for the rocketing charges for social care (provided by private companies which, by a further irony, are very likely to be employing workers on such low wages that they require tax credits to survive and which may, or may not, be paying corporation tax).

So much for the baby boomers who scrimped and saved to pay mortgages. What of those who remained in their social housing and paid rent instead? Well they are already being being punished – by the ‘bedroom tax’. If they have any spare space whatsoever apart from their bedroom (whether used to house medical equipment, a study or any other purpose) then they have to pay an unaffordable extra sum of rent for it. So, although they may have faithfully paid rent for many years and put money and effort into maintaining and caring for the property, they are no more secure in their housing than anyone else.

Once again, what is happening is that different sections of the population are played off against each other, while corporate interests are rendered invisible.

to be continued

* Taken from here and here and here.


4 thoughts on “Don’t attack the baby boomers

  1. Pingback: The income tax taboo | Ursula Huws's Blog

  2. Pingback: The importance of a minimum wage | Ursula Huws's Blog

  3. Pingback: The importance of the minimum wage | Ursula Huws's Blog

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