13 Dec 2010

Scrap the EMA and give the winter fuel allowance to someone on a cruise: welcome to the gerontocracy

Today thousands of teenagers will be protesting about the scrapping of their means-tested £30 a week Education Maintenance Allowance (EMA) for regularly-attending college students in low-earning households. It is poorly-targeted, “a deadweight cost” say the government, in that it is paid to many teenagers who would have attended anyway. It promises an as yet unspecified replacement.

By happy coincidence today, HM Treasury cheques for £250 were being dropped in to the letterboxes and electronic bank transfers of 460,000 high rate taxpayers, and two-thirds of the House of Lords, for being over 60, and it being cold.

Note that you don’t actually need to have been made cold in order to claim. For good measure, over 60,000 British winter expats, sunning themselves in warmer climes, are also receiving the Winter Fuel Allowance for apparently not enduring Britain’s savage winter. (Bizarrely you only have to be living in the UK between the 20th and 26th September to qualify for the full Winter Fuel Payment).

So the EMA will be scrapped, and an as yet unspecified support scheme will be targeted at poorer students on account of its “deadweight”. Yet the principle of paying every single person over the age of 60 a Winter Fuel Payment, regardless of whether they are even in the country, is inviolable. Does that make any sense at all?

Well welcome to the gerontocracy. This is the reality of the generational argument invoked by the Government repeatedly since May. In the round, young people, who don’t vote, will fare much worse off than older people who do.

The Chancellor invoked the concept when talking about how he believes his Budget and Spending Review were ‘fair’.

In Nick Clegg’s recent speech on social mobility he talked of the Great Law of the Iroquois, which mandates the consideration of the impact on seven future generations of decisions made today. Universities minister David Willetts has gone as far as writing a book on the subject called The Pinch. Two younger journalists have written Jilted Generation. It’s difficult to escape the generational debate, and I made my contributions to it a few years back: here http://ow.ly/2xn3R and here http://ow.ly/2xn84.

The Coalition’s definition of generational fairness is to reduce the deficit and eventually the national debt bequeathed to future generations. This argument is rooted in sound economics. However if the great majority of the measures taken to reduce the deficit disproportionately fall upon the young, then it becomes a little lame.

So that is why the “deadweight loss” of teenagers improving their skills is a waste of money, but is perfectly fine when it comes to wealthy pensioners who are palpably not cold, getting cold weather payments.

It’s why the reforms to the public sector pension scheme are not quite as advertised. John Hutton’s fascinating interim report for the Chancellor showed, not a system heading for bankruptcy, but one that would cost the nation a smaller proportion of the economy (1.7 per cent) in 2049 than the current cost (1.8 per cent).

The “crisis” in public pensions is entirely about the cost of retiring baby boomers over the next decade or so. The remedy is a familiar one: squeeze existing younger workers’ by 3p in the pound to pay for retirement ages and pension conditions for this generation, which they will not benefit from.

And there are numerous other examples of the generational unfairness of the spending review. Take tuition fees. It is undoubtedly true that the Coalition has tried very hard to make the policy “fair” on its own terms. So the poorest 20 per cent (measured by future lifetime income) will pay less than under current arrangements. But this “relative fairness” does not disguise the fact that it is “absolutely unfair” to future students to pay tens of thousands of pounds for something that had a negative price for all over-40s.

The politics of this are very clear: the over-55s have four times the voting power of the under-34s (and half of that arises from what was the self-inflicted apathy of the young). But an inadvertent economic strategy of squeezing the young and protecting the old will eventually fail. No wonder the response has been, shall we say, fairly angry.

Invoking generational fairness might sound very clever, on the part of the government. The evidence so far is that they are skating on thin ice.