4 May 2017

It’s time to tackle pensioner benefits


The IFS has produced one of its characteristically insightful analyses of the UK’s fiscal situation in the run-up to the General Election. Much of it is familiar territory, covering the large rise in taxes of recent years, taking us to levels seen previously in the late 1980s.

It also notes the work still to do in eliminating the deficit. Although, at under 3 per cent of GDP, it is back in the “normal” range, it is still a bit higher than one would like, given how long it’s been since the last recession. Nor does it provide us with much scope to get Government debt back towards the 40 per cent of GDP considered normal pre-2008.

Perhaps the most interesting part of the report covered the ways spending has risen since 2007/08. That is in some ways a misleading metric. First, spending peaked in 2009/10, not 2007/08. Second, it disguises how much faster spending on health and schools rose than other spending before then. Those were the budgets that it should have been least painful to cut post-2010.

Nonetheless, the IFS analysis illustrates what happened afterwards, relative to the pre-2008 situation. Since 2007/08, relative to the economy as a whole, spending on health has increased by 0.5 per cent of GDP, spending on pensioner benefits by 0.5 and international aid by 0.3 per cent.

By contrast, spending on public order and safety has been cut 0.7 per cent of GDP, schools 0.4, defence 0.3, debt interest 0.2 and other welfare benefits by 0.1 per cent. If we need more spending cuts now (we do, at least relative to GDP) we should look first to where spending has risen.

There is much talk of international development, and perhaps there is scope to do a little there, say by making some future EU payments part of development aid – eg if we contribute to EU assistance to Ukraine.

The big budget (and the least painful in substantive, if not political, terms) to cut would be health. But we can probably assume that won’t happen.

Much more plausible would be cuts to the rapidly-rising pensioner benefits budget. Pensioners used to be relatively poor, but only fairly low proportions of them were willing to claim benefits if they were seen as received only by the poor. Paying some benefits even to rich pensioners made some sense in that context. Nowadays pensioners are relatively rich. Giving free bus passes to rich folk makes little sense.

We do not need dramatic further spending cuts. The heavy lifting is largely done. But there’s almost no scope for yet more tax rises, and we do need to get the deficit down a bit more yet. Aside from our EU contribution, pensioner benefits is the place to start.

Andrew Lilico is an economist and political writer