The idea that Britain is a gerontocracy, run for the benefit of the old at the expense of the young, has gathered support over the course of this pandemic. If Gen Z aren’t being placed under house arrest to protect Granny, then they’re funding care for the elderly via a hike in National Insurance contributions. Their education has been severely disrupted, their employment prospects dampened.
But there’s good reason to be sceptical of the idea that Boomers stole Millennials’ futures and should give it back. For a start, Boomers, Millennials, Zoomers are no more a homogenous group than women, or heterosexuals, or ethnic minorities. Older people had a 16% mortgage interest rate, longer working weeks, and many didn’t have access to a university education. International travel was a luxury many couldn’t afford in their 20s and 30s. Smartphones didn’t exist.
That said, Government’s addiction to spending, with each new ‘investment pledge’ representing the latest fix, risks saddling future generations with immoral amounts of debt. The public finances are in a parlous state, yet today’s budget saw yet more spending.
And here’s the clincher: new research from the Institute of Economic Affairs has found the unreported annual cost of public sector pensions was £57bn in 2020-21. These pensions are not funded. They will have to be paid by the current working generation and at least two further generations through their taxes, representing a significant transfer of wealth from younger to older generations – younger generations who (if they’re in the private sector at least) are not going to benefit from pensions anything like as generous as these.
But the intergenerational ‘inequality’ this sleight of hand compounds is just one of many issues with Government marking its own homework and claiming the wrong answers are correct. The balance sheet could actually be worse than any official statistics acknowledge. Every year, for instance, the budgeted cost of NHS pensions is £17bn less than what is paid out. And yet the Chancellor is pouring another £6bn into our crumbling healthcare system, ending the public sector pay freeze at a time when these workers are still paid more, on average, than those in the private sector. An ONS study estimated that the public sector earnings premium was still 7% in 2019 (and doesn’t include employer pension contributions as well as employee contributions, but that’s a separate issue). These artificial rates prevent the labour market from working fairly and transparently: if public sector workers are being paid (through their pensions) about 30% more than is being reported, all public/private pay comparisons are completely distorted.
We’ve arrived at this point because the Government chose, some 16 years ago, to adopt two differing accounting methods for public sector pensions’ ‘costs’. The process was designed to retain some control within Government of the costs of these pensions, but it’s illusory: the current arrangements control the reporting of the costs but not the actual cost, meaning they’ve continued to appear ‘affordable’. Put simply, a discretionary cost method of calculation is used to determine what public sector employers and employees pay each year for their pensions. It is based on an (arbitrary) assumption about investment returns (i.e. an interest rate of the Government’s choosing).
And if a private company were to follow the Government’s cost methodology, it would breach pension regulations. It would be sanctioned, required to apply the national and international standards to its pension accounting, and required to ‘top up’ the inadequate employer contributions to cover the resulting deficit. Failure to comply could, down the line, lead to liquidation.
We’re not in a gerontocracy, and it’s certainly in the Conservatives’ best interest to keep it that way: 67% of Millennials want a socialist economic system and younger voters overwhelmingly backed Labour at the 2019 general election. Abandoning its artificial rate is a good place to start – it may not grab headlines, but it’s the right thing to do.
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