Pensioners should “share the pain” of austerity cuts and pay more tax to promote inter-generational fairness in the housing market, a think-tank says.
The Fabian Society claimed high levels of home ownership among older people threatens fairness, as middle-income workers’ wages stagnate and they cannot afford to buy a home.
More than three-quarters (76 per cent) of pensioners now own homes, compared with just over half (58 per cent) 20 years ago, while the last decade has seen a “dramatic fall” in home ownership among under-45s, the think-tank said.
In 1979, the year Margaret Thatcher came to power, middle-income working age households enjoyed an income 93 per cent above that of middle-income retired households. That figure is now 37 per cent, the study showed.
The society said this had “profound implications” and there should be a “presumption of equality” as “old age is no longer a proxy for poverty”.
“In public policy and deficit reduction measures, ministers should adopt a presumption of equality across age groups,” the society said. “In financial terms alone, older people are no longer distinct, and blanket policies favouring them should be reviewed.”
The society argued that pensioners’ taxes should increase, their benefits be cut, and a tax on property wealth should be introduced.
The key policy should be to raise taxes on pensioners so the 27 per cent they pay as a portion of their gross income would rise to 33 per cent, in line with working age households with the same income.
This would raise £7.2 billion every year, the society said.
However, the project should be long-term, to avoid a sharp drop in living standards.
In the meantime, the government should consider measures such as taxing private pension lump sums as part of a “grand bargain” that would help fund universal care services.
Specific universal benefits such as the winter fuel allowance – which contributes 3 per cent to middle earning pensioners’ incomes – could be re-assessed without threatening the wider principle of universalism, the think-tank said.
The government should also scrap its “triple-lock”, which keeps pensions rising in line with the highest measure of inflation, as when working age incomes are falling it “creates inter-generational unfairness”.
The age of 80 is an “appropriate starting point” for age- specific benefits “if the policy is aimed at supporting those on low incomes or older people with high social or health needs”, the think-tank said.
Matthew Sinclair, chief executive of the TaxPayers’ Alliance, said: “We shouldn’t be punishing home-owning pensioners with ever higher taxes, but rather should address the reasons why home ownership is decreasing in younger groups.
“Supply is not meeting demand and that’s because planning laws are too stringent and politicians have imposed sky-high rates of stamp duty.”
A Scottish Government spokesman said: “An independent Scotland with full control of taxation will be able to develop a fair system that addresses Scottish circumstances, to create a wealthier and a fairer society.
“Scotland’s thousands of pensioners have made a significant contribution to our society and economy and will continue to do so in years to come.”
Should pensioners be made to pay up for greater fairness?
Andrew Harrop: YES
MOST older people are not benefiting from the property boom because although they are sitting on a huge amount of housing wealth, they are not spending the money.
Few draw down assets during their lives and so the money gets passed on to relatives.
If older people are not benefiting from their property wealth they are not going to lose if housing does become more affordable – and this is something young people desperately need.
So there is less of an inter-generational conflict than there at first appears, because the housing market serves no-one’s interests.
For that reason the Fabian Society’s new report calls for the government to have an explicit target to reduce the cost of housing compared to earnings. The two major policies to bring this about are firstly housebuilding and, secondly, introducing much more property taxation, as council tax is a very ineffective tax.
The report argues that older homeowners could wrap up the cost of annual payments against the value of their home because we recognise many people in retirement will not have a lot of disposable income, even if they have considerable wealth.
The report also calls for a presumption of equality between generations when politicians take decisions.
• Andrew Harrop is general secretary of the Fabian Society
Lindsay Scott: NO
HOME ownership is not automatically a sign of wealth. It is fine for someone from the Fabian Society sitting in the south-east of England to look at pensioners and home ownership and wealth. But if you look in Scotland, we have more than 1.1 million pensioners and ten per cent of them are living in poverty.
While a lot of them may own their homes, they probably bought them from the council at a discount and where would they go if they had to move out?
This concept of sharing the pain is not a bad idea, but if you are looking at Scottish pensioners they do not have that much to share. They are already being hit by the financial situation. They are getting no interest on their savings and have not for the last five years.
Everything is going up but pensions are not. There are marked increases in the cost of heating your home and the cost of food and transport. A lot of pensioners have bus passes which they can use, but in Scotland there are huge rural areas where a bus pass is not going to be something all older people can use.
If we are looking to spreading the pain we need to start higher up the scale with the rich, rather than starting with pensioners who are feeling the burden of cuts.
• Lindsay Scott, Age Scotland