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Granny tax? It's a fair move for our ageing population

Published on 26 March 2012

When I was young, I admired almost everything about old folk.

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The only people I admired more were dead people. But now that I have reached the point where I have nearly more pairs of spectacles than I have teeth, and neither spectacles nor teeth work very well, I have revised my opinion.

Many of the current crop of pensioners are a disgrace to the name. They aren't old people at all, just young people who have lived for a fairly long time. Quite a few of them, like Sir Mick Jagger, 68, and Bill Clinton, 65, hardly qualify as grown-ups, let alone as proper old people. The drummer for The Stranglers is 73, for heaven's sake, demonstrating that punk's not only not dead, but has had a bus pass for years and will soon qualify for a free television licence.

All this makes me wonder why the only thing the Government neglected to leak in advance of the Budget was the freezing of pensioners' preferential tax allowances, thus ensuring that newspapers would whip up outrage about it. George Osborne has contrived a presentational disaster out of what could have been explained as a perfectly straightforward, even a progressive, measure.

The facts about the "Granny Tax" – as, no matter how misleading the label is, it is bound to be thought of now, thanks to Mr Osborne's criminal ineptitude in trying to bring it in by stealth – are hardly likely to bring the public to the barricades. But that doesn't matter; the public perception of this Budget will be that it rewarded millionaires by robbing the elderly of their pensions.

It has gone almost unnoticed that there was a significant rise in the state pension, and that it is now "triple-locked", so that it will be linked to average earnings, the Bank of England base rate or inflation, whichever is highest. And, though frozen, the personal allowance for existing pensioners is still higher than for the rest of the population (as all personal allowances move towards the LibDem goal of £10,000 over this Parliament, the Chancellor's intention is presumably to let these allowances converge).

The only people who are at all worse off are those who were about to retire and who already earn enough to be paying tax. The Institute for Fiscal Studies talked about the average loss for the minority affected being one quarter of 1% of income.

Yet somehow Mr Osborne has managed to get this reasonable policy presented as a heartless Tory attack on elderly people. He should have known that in media coverage, pensioners, like nurses, are always painted as a virtuous and vulnerable group. What's more, unlike nurses, it's a group that everyone expects to be a member of eventually, especially since the rise in tobacco duty means that no-one can afford to die young any more.

But the reality is that you can't simultaneously claim that the Budget hammered pensioners and that it helped the rich. Overwhelmingly, pensioners are the rich. The generation now in or approaching their 60s is, on the whole, historically one of the most affluent ever.

For the first time, they have a higher disposable income than people in their 20s – a generation which is expected to be the first to have a lower standard of living than their parents, and where unemployment is far too high.

The oldies, by contrast, have been part of the generation which received the greatest benefits from the welfare state, collecting their winter fuel allowances even if they are on the golf course in Fuengirola. It is the generation which receives final salary pensions which are impossible for those now in the workforce to obtain. And it is not just income, but wealth. Thanks to the insane rise in property prices fuelled by them, they are also the group which holds the most significant assets. Meanwhile, amongst the working population, the average age of a first time buyer is set to hit 40 by the end of this decade.

Of course, not all older people are so fortunate. But the ones who aren't are not adversely affected by the changes. And it is essential that we deal politically with one of the great demographic problems of our times. The fact that most of us are living longer, and that the younger working population (if they can get a job to begin with) is simply not sufficient to support this group, already creates an unaffordable position. It will soon be catastrophic.

Several things are unavoidable. The first is that the Government should acknowledge that public borrowing, inflation and quantitative easing have all robbed pensioners. The second is that pensioners themselves realise that National Insurance is a Ponzi scheme, and that they have not been saving for their own retirement, but paying for those who were already retired, just as it is those who are now working who are paying for their pensions.

Since there are not enough of them, people will have to work longer. I do not now think that the increase in the pension age to 67 will be introduced as late as 2026, but much sooner than that. And if you were born after about 1965, I wouldn't bank on retiring until the age of 70, if at all. Nor should those that age expect a windfall from the sale of their parents' homes; those assets will in all probability have been spent on their care in nursing homes, no matter what politicians promise now.

The other thing which I imagine will be an inevitable consequence of our aging population is a revision of current thinking on immigration. If Britain's working population is to be large enough to support the elderly, even more people working into their 60s and 70s, or until real infirmity sets in, will not be enough.

We will need large numbers of people to come to this country to work. And to ensure that they do, we will need radically to cut the welfare state and remove disincentives from work. Cutting the top rate of tax and stepping up the cuts in public spending may actually have been the most useful service the Chancellor performed for pensioners.

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