Kevin Spacey, looking greyer and paunchier as President Underwood in the third series of House of Cards, shocked Democratic party leaders when he told them a plan to create 10m jobs must be paid for with dramatic reductions in benefits, especially for the old.
As usual, it was hard to tell if the move was a genuine tilt at a social democratic legacy or yet another tactic in Underwood’s never-ending scramble for survival. Taking him at his word, Underwood’s jobs plan is a return of fire in the long battle of the generations, with the fictional president attacking better-off baby boomers on behalf of blue collar families and the young.
It is a battle that no politician can consider in the UK. With an election looming, one that is dominated by appealing to the over 55s, the money available for the young is pitifully small – and is going to get smaller whichever of the major parties lead the next government.
The only way out must be for the party manifestos to address some of the taboos about the over 55s that no one wants to discuss. Here are six:
Pensioners need their own tax system
The range of pensioner incomes is more compressed than for the general population. Even people who enjoy a combination of the state pension, the state’s earnings-related top-up and a private pension rarely enter the 40p tax bracket. Why not have a separate sliding scale of income tax bands for the over 65s. These could have lower personal threshold (when traditionally it has been higher) and a 40p tax band that starts at £25,000 (almost £42,000 at present) and a 45p band for those banking £80,000 a year – which means more tax gained from Fred Goodwin’s £300,000 RBS pension. The coalition’s policy of increasing the personal tax threshold to £10,000 and beyond, combined with their lower average incomes means better-off pensioners are lightly taxed. This should change.
Overhaul pension tax relief
There has long been a campaign to limit pension tax relief, which amounts to around £30bn a year. A host of other incentives, such as employer’s relief on national insurance contributions and tax relief on the investment income, make a bad situation worse. In a Centre for Policy Studies report, former investment banker and David Cameron adviser Michael Johnson calculated that over the 10 years until 2012 the pension tax relief amounted to £358.6bn. Put aside that much of the money was put on the stock market and went nowhere, the central point is that most of government subsidy went to better off workers. The situation has become increasingly upsetting for low-paid and part-time workers who earn under the £10,000 income tax threshold and are therefore excluded from tax relief system altogether.
The state pension must evolve
Pensioners are one of the big winners from the last five years of austerity. According to the Institute for Fiscal Studies, by this April the over 65s will be £4.6bn better off than they would be if the coalition had ignored calls for a “triple lock” that makes sure the state pension increases in line with rising inflation, earnings growth or 2.5%, whichever is higher. Pensioners benefits, including the free TV licence for the over 75s and winter fuel allowance. Labour and Liberal Democrats have promised to means test the winter fuel allowance, but only to save £100m, which is a small proportion of a £78bn bill that amounts to almost 50% of welfare spending. The next government should only link the state pension to inflation, while recycling some of the savings from lower pension tax relief into more generous council services for the disabled and infirm.
We must build homes for the old, not the young
On Saturday, the television celebrity Kirstie Allsopp lectured Radio 4’s Saturday Live audience with her belief that the nation needs lots of homes made from pre-fab kits to house young families. Sounds good, but as a report by the Intergenerational Foundation made clear, the housing crisis is more about encouraging empty nest baby boomers out of their four-bedroom homes into something better and more suited to their needs. These might be high rises in the centre of town or a bungalow. More likely, they would be on an estate, of which there are too few, that look and feel like any other private, well-designed collection of homes, but are in fact specially designed communities. Some councils and housing associations have adopted innovative designs and for their trouble have long waiting lists. The government needs to ease old people out of family homes, not with a stick, but a carrot, otherwise they will never move and young families, knowing no better, will be condemned to live in modern rabbit hutches.
Wealth taxes are a must
How else to shift the burden of taxation away from the young? Only a tax on parent and grandparent wealth will suffice. Labour’s mansion tax is a start. It is not very elegant and critics who say a tax on £2m-plus homes should be part of a revamped council tax can argue it would be a simpler and more coherent reform. But if the target must, in the first instance, only be the very rich, then it is a good place to start. Next stop should be taxes on land more generally, which has become the source of endless speculative activity. The International Monetary Fund and the Paris-based OECD thinktank have argued for a switch away from taxes on incomes to taxes on wealth. In Britain wealth is lightly taxed, encouraging the better off to find ways of taking an income from gains in wealth (capital gains tax at 28%) rather than gains in income (higher rate tax at 40% or 45% for those earning more than £150,000)
The national debt is not a tax on the young
Britain entered the financial crisis in 2007 with comparatively low debts of just over 43% of GDP. Now it is heading for 90%, depending on the measure used. But the cost of servicing the debt and who pays the taxes to finance the annual debt payments is the key. If the burden of debt payments has shifted to older workers through extra taxes on wealth and the interest rate on the debts are low (and they will remain low while there is too much savings chasing too few reliable sovereign bonds assets, like the UK’s) then the extra debt burden in a few years is not so costly and it is not just the young paying.
• This article was amended on 8 March 2015. An earlier version said that Kirstie Allsopp was a Tory peer. That is not the case. The Intergenerational Foundation was misnamed as the Intergenerational Trust.
