Avoiding the question

Tweet

 

Pensions are a complicated business, and the UK State Pension is particularly so, given that the rules, amounts and eligibility criteria for the different rates keep changing. But in looking at the history of the triple lock, we need to go back to the Thatcher years. For some years prior to 1980, the uprating of pensions was based on a combination of average earnings and the Retail Price Index, but Thatcher’s legislation in 1980 ended the link with average earnings. Over the long term (even if it doesn’t always feel that way!), wages tend to rise faster than prices, which is why people generally feel better off over time and enjoy a rising standard of living. But an income linked only to prices will inevitably do no more than maintain a standard of living, and the extent to which it even does that will depend on which prices are included in the calculation and the extent to which the things purchased by an individual match that selected ‘basket’. Those on lower incomes (such as those dependent on the state pension) often find that their more personal rate of inflation is higher than the overall average, meaning that they slip backwards.

The triple lock was intended to reverse that decline and bring the state pension back to the effective relationship it had with earnings prior to 1980. On that basis, Steve Webb (the Minister who introduced the policy) was surely right when he said recently that "there will come a point when it's done its job". Whether merely ‘restoring’ that relationship to its pre-Thatcher level is the right target or not is a matter of opinion; there has been remarkably little debate about what the ‘right’ relationship between earnings and pensions should be. 30%? 50%? 80%? 100%? Parking that issue, the question in considering whether the triple lock has done its job or not should be an assessment of whether the percentage is or is not back to the 1980 level. At that point, and assuming some sort of agreement on the ‘right’ percentage of average earnings, a single lock (with average earnings) is all that is needed, and would also align the incomes of pensioners and employed people in the same relationship with price inflation. But making that assessment isn’t straightforward because of other changes to pensions (including the move from the old married couple pension to individual pensions, for example), but if any of those arguing for the abolition of the triple lock truly felt that they could make a good case for having restored the 1980 value of pensions, we can be certain that they’d be shouting it from the rooftops. The rooftops are looking and sounding conspicuously quiet.

They don’t, of course, put it in these terms, but anyone arguing for abolition of the triple lock (and Labour seems to have its share of them as well as the Tories) is effectively arguing for an arrangement which, at best, locks the rate of pensions at its existing relationship with average earnings. It’s easy enough to see why they avoid putting it that way – it’s not an argument that I’d want to make given the comparatively low level of the UK state pension. Those arguing that better off pensioners (those with savings and investments or good occupational or private pensions) don’t ‘need’ the full state pension and should be paid a lower amount are being disingenuous at best, and avoiding the real point at worst. Pensions, of necessity, require long term decision-making, and many people will have planned for their retirement on the basis of assuming that the ‘deal’ that they thought they were getting when they started work – paying NI in return for pensions in later life – would be honoured in due course. Had they known in advance that that particular income source would then be means-tested, they may well have taken different decisions, but they can’t go back and do something different. There is another way, though. Those on higher incomes – whether through pensions, interest payments, dividends, rents or wages – could be asked to pay more in tax. The source of that income ought to be irrelevant: the clue is in the name, it’s an income tax. The talk about reducing the state pension for some recipients is really about avoiding that issue. Labour, just like the Tories, is reluctant to tax more heavily those who can best afford to pay it. Talk of ‘need’ or ‘means tests’ is just a distraction from that reluctance to in any way reduce the disposable income of the group in society which they represent and serve - the most well-off.

Not necessarily 5% of everything

Tweet When it comes to the way in which governments spend money, “need” - and I put it in quotes because although it’s easy to say, it isn’t at all easy to define – should be a more important driver than equality, a point which I highlighted in this post last week.  Ultimately that assertion is the basis of much of the argument for Barnett reform – Wales has greater need per head on average for those services which are devolved to the Welsh government and should therefore receive a greater share of resources.

It does not mean of course that that greater need is equally distributed across the whole of Wales (similarly, the English average is just that – an average - as well; it varies greatly across England).  It often strikes me as being incongruous, at the least, to see politicians arguing for a reform of the Barnett formula to give Wales a greater share, and then jumping on bandwagons about “postcode lotteries” within Wales when they see inequalities within our country.

Fairness is difficult to define when we look simply at revenue expenditure on devolved matters.  It’s even harder to define when we look at major capital infrastructure projects – such as HS2 for instance.

The call for a Barnett consequential for HS2 has a certain political appeal, supporting the narrative that Wales is losing out, but surely the nature of individual capital projects is that they will inevitably favour some areas over others.  The question of fairness is only relevant when looking at the total of all capital expenditure over a longer period rather than individual projects.

There’s a further complication as well – capital projects which impact major conurbations are likely to be more expensive in terms of £ per mile of road or railway than the same or similar projects in rural areas.  Does that mean that London “needs” more capital expenditure per head than Wales, and that a needs-based distribution should proportionately give a greater share to London?

Or what about the putative HS3?  If a line is built providing fast rail services to Bristol and Cardiff, what proportion of that expenditure should be counted as “Welsh”?  Probably 90% of the capital expenditure would be in England – but that would not reflect the way in which any benefits are shared.

I’m not actually arguing that London should get a greater share of UK capital expenditure; nor even that Wales gets her fair share at present.  But the simplistic response demanding our Barnett share of capital expenditure based on an arithmetical percentage of individual capital projects no more reflects need than does the current Barnett formula.  The question of fairness is far more complex than that.