July 10, 2012

Photo: Alamy/ In TV debates before the last election, David Cameron pledged to maintain universal pensioner benefits; to reverse that promise now would be close to political suicide 

If you are a pensioner, or soon to become one, batten down the hatches, for with the public finances strained to breaking point, your tax breaks and entitlements are about to come under sustained siege.

This might seem an odd thing to say on the day the Government is expected to accept, in principle at least, the Dilnot proposals to cap the amounts older people are expected to pay towards their care. But the costs of this concession, assuming it ever gets introduced, and the multitude of other fast-growing liabilities associated with an ageing population, have to be funded somehow. All the signs are that the Government will eventually end up trying to plug the gap by taxing pensioners more, and via what in essence amounts to the same thing – means-testing some entitlements. What the state gives with one hand, it will take away with the other.

In a speech to the Resolution Foundation yesterday, Nick Boles, an influential Tory backbencher, suggested just that: free bus passes, free TV licences and winter fuel allowances should go for better-off pensioners. By raising this prospect, he is stirring up a political hornets’ nest. Just the relatively innocuous removal of a pensioner tax perk in the last Budget – the so-called granny tax – caused a storm of protest, helping to cement the perception of a Chancellor hopelessly out of touch with ordinary concerns. What’s more, in TV debates before the last election, David Cameron pledged to maintain universal pensioner benefits; to reverse that promise now would be close to political suicide. Yet whoever wins the next election is going to have to confront these issues somehow.

Lack of growth has pushed the planned deficit reduction programme well into the next parliament, with a further £10 billion of additional, unspecified welfare cuts still to come after 2015. Analysis by the Office for Budget Responsibility shows the longer-term outlook to be grimmer still. In the absence of big changes in public policy, the OBR says, the Government would be forced to spend ever more as a proportion of national income on age-related items such as pensions and health care, with little rise in government revenues to compensate.

Having struggled to get on top of Gordon Brown’s disastrous legacy of overspending, future governments face a groundswell of separate, age-related pressures which, left unaddressed, would ratchet up the national debt to well in excess of 100 per cent of GDP in 50 years’ time. In a reductio ad absurdum, Barnet council has produced a “graph of doom” which shows that, such are the demographic pressures, within 20 years the London borough will be unable to fund any services outside adult social care and children’s services – no libraries, no parks, no leisure facilities. Even bin collections would go.