Friday, 9 July 2021

Dividing to conquer


Whilst death and taxes may be life’s only absolute certainties, there are other things which run them close. Amongst those are that the English Conservative and Unionist Party will always attempt to balance the government’s budget at the expense of the poorest, whilst encouraging those just a little better off to blame those poorer than themselves for inequality rather than blaming the richest.

The ‘pensions triple lock’ was designed to ensure that the UK state pension can never lose value over time as it often did previously. In fact, during a period of low inflation and low wage growth, it can have the effect of marginally increasing the value of pensions – for example, if inflation is 2%, the guaranteed minimum increase of 2.5% means that pensions will increase in value by 0.5%. Not a huge amount, but a small slow step towards better pension provision in a country with one of the lowest state pensions in the developed world. The fact that, as a result, state pension increases have been marginally higher than wage increases in recent years doesn’t alter the fact that the poorest pensioners – those entirely dependent on the state pension – remain amongst the poorest in society. There are increasing suggestions that the Chancellor – a man who will never find himself having to live on the basic state pension – is going to alter or suspend the triple lock in order to save money this year.

It’s true that, because of the way the calculation operates, pensioners could be in line for an increase of up to 8% this year as a result of the pandemic, but this would be a ‘one-off’ quirk, and would still leave those dependent solely on the pension as one of the poorest groups in society. Comparing percentage increases – 2% for wages and 8% for pensions – may appear to show that pensioners are getting an unfairly advantageous rise, but it’s a misleading statistic. 8% of £9,340 (current state pension) amounts to an annual increase of £747; 2% of £28,000 (average full time weekly wage) amounts to an annual increase of £560. The difference between the two is a lot smaller put in those terms, and extra purchasing power is always going to be of most benefit to those who have the least of it to start with. It’s also true that many pensioners are not wholly dependent on the state pension and receive occupational or personal pensions of some sort in addition. Those extras are not subject to the triple lock and are likely to increase only in line with wages or inflation, but policy in relation to the basic state pension should surely be set by thinking about those wholly dependent on it, not those receiving additional monies which can and should be taxed appropriately.

The very idea that spending to deal with the pandemic has created a ‘debt’ which needs to be ‘repaid’ is a nonsense anyway, as has been discussed on this blog previously, but attempting to ‘repay’ a non-existent ‘debt’ by keeping the income of the poorest groups low is also an attempt to divide us amongst ourselves. It helpfully diverts attention from the way in which the richest have benefited disproportionately from government spending on the pandemic. Presenting the situation as some sort of conflict between generations (as some seem keen to do) all adds grist to the Tory mill. It also overlooks the power of compounding (referred to earlier this week), which means that the main beneficiaries of a slow growth in pensions over a long period aren’t today’s pensioners at all. They will see only modest benefits from a half per cent or so each year. No; the power of compounding means that the real beneficiaries will be those who are decades away from retirement – precisely those being encouraged to oppose the triple lock today. We should be asking ourselves whose interests are really served most by limiting pensions increases.

I should add another certainty to the list at the start of this post: the Tories will always seek to persuade working people to oppose policies which are in their own best long term interest, and to support those which benefit the Tories and their friends. Sadly, they often succeed.

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