This article was initially published on The Times Red Box on 20th October 2017
Jeremy Corbyn won a majority of votes in every demographic under 45. There are, of course, many reasons behind this, but one area that has been ignored so far is the way that welfare reform has been carried out since 2010.
On a per household basis, real terms welfare expenditure has fallen by 10 per cent for children and those of working age. Welfare reform has been necessary, of course. A spiralling welfare budget needed to be curtailed. Yet one group has been wholly insulated from this necessary correction — pensioners.
Since 2010, real terms welfare expenditure per pensioner household has actually increased by four per cent. This means that we are now in the extraordinary position where the average pensioner has a higher median income after housing costs than the working age population — and present policies are set to make this differential even higher.
What is the explanation? The main culprit is undoubtedly the triple lock on pensions, which means the state pension increases by the highest of earnings, inflation or 2.5 per cent. And, as I have set out in the Centre for Policy Studies’ most recent publication, the cost to the exchequer has been enormous.
Had the state pension been uprated in line with CPI instead of the triple lock – which would have maintained its purchasing power – the Treasury would now be £8.6 billion a year better off.
This could have allowed the government to drop the basic rate of income tax by about two percentage points, helping all demographic groups and the vast majority of taxpayers, while leaving the UK in the same, or possibly a better, fiscal position.
Alternatively, the government could have reduced the tax burden by a smaller amount and allocated additional resources to areas of need, such as social care.
This raises the question: if the government had had greater scope to pursue tax cuts for ordinary families, and additional funds in areas of need, would Jeremy Corbyn have experienced such an extraordinary growth in popularity among those in their 30s and 40s at the general election?
You are probably wondering why all of this is the fault of Nick Clegg and the Liberal Democrats. Well, the triple lock was actually a pledge from the Liberal Democrat manifesto in 2010 and insisted upon by Nick Clegg and his colleagues during the negotiations after the 2010 election. Rupert Harrison, George Osborne’s former special adviser, said that it was accepted by Conservatives on the basis that the Treasury believed it would cost only £50 million. If true, this is one of the most costly decisions taken by the Coalition.
It has also left the government with a horrible political problem. The triple lock has caused huge fiscal problems, but any changes to it will be presented as an attack on pensioners.
One of the most responsible parts of the Conservative manifesto was a pledge to move to a double lock by 2020, uprating state pensions by the highest of earnings or prices. Yet this eminently sensible proposal has been dropped following the tight election result, at the insistence of the DUP.
Given that pensioners are now better off on average than the working age population, it would not seem fair — nor fiscally sustainable — to continuously uprate the state pension by the highest of earnings, prices or 2.5%. Unfortunately, the political realities mean that such an outcome is highly unlikely at the present time.
In the longer term, the government should be seeking to uprate the state pension in line with CPI inflation, which would maintain its purchasing power and, at the very minimum, the guarantee in the triple lock should be dropped from 2.5% to 1.5%.
This would guard the Treasury from additional fiscal burdens arising from a situation where inflation and earnings growth are hovering about 2%.
This would still technically be “a triple lock” — and pensioners would still be getting a very good deal, leading to their living standards growing compared to the working-age population.
It might even mitigate some of the fiscal damage caused by the Lib Dems’ misguided insistence on the policy all those years ago.