David Blunkett: The age-old question of generational fairness

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George Osborne announced last weekend the extension of the so-called Pensioner Bond, with a lengthening of time past the General Election, and the Chancellor announcing they would pay interest of four per cent to investors.

This reignited an ongoing debate about the impact of austerity and of Government measures in respect of what has become known as inter-generational fairness. In simple terms, the Government is borrowing money from those over 65 at higher rates than could be obtained on the international markets. The rest of the population are clearly paying for it.

Do not take my word for it. The right- wing Institute for Economic Affairs has condemned the extension and expansion of the scheme, which on the face of it is a generous gesture.

Yet, at a time when 60 per cent of the austerity measures are yet to be implemented and further eye-watering cuts to benefits are proposed, the announcement puts into sharp focus the debate about who is bearing the greatest burden.

Might this have something to do 
with the proportion of particular 
age groups who vote in general elections?

Ten days ago, speaking at the launch of a “manifesto” on welfare by the centre-right think tank Policy Exchange, I returned to some familiar themes of mine from a decade ago relating to the principles we should be following in respect of the welfare state.

As I laid out in 2005, the role of the State should be “liberating and enabling”, “addressing the root causes of poverty” and to “overcome inter-generational disadvantage”.

That role remains a challenge. It is only because we have a flexible labour market and the systems put in place by the last Labour government that we have been able to ride out the worst of the current austerity programme without mass unemployment.

Helping people through change is part of the purpose of the benefits system, and not merely picking them up when they have fallen through the cracks.

While the “Benefit Cap” and the further proposed reduction by David Cameron is a clever political ploy, grabbing the headlines and appealing to resentment and sometimes hate, what we need instead are hard-headed measures to create a social compact across those generations, geographic communities and different social backgrounds.

After all, the better-off have benefited enormously from public expenditure throughout the generations, whether it was in investment in higher education, tax breaks (in the past on mortgages and currently on pensions) and also picking up the pieces when economic catastrophe, as with the global meltdown, would otherwise create horrendous social rifts.

So I am putting forward a series of challenges which I hope will contribute to the debate through the General Election and a Labour victory on May 7.

First, instead of taking away benefits, we should introduce clear conditionality. Instead of removing Housing Benefit from 18 to 21-year-olds as David Cameron proposes, make the right to such assistance conditional on taking up agreed training opportunities, a chance to volunteer, as well as support with social skills and budgeting.

Also, instead of punishing children by taking away Child Benefit from their parents, we should introduce conditionality which after the birth of a second child would require attendance at appropriate classes in parenting, money management, training for a job and other post-natal learning opportunities. Also, where applicable, a requirement to improve attendance at school.

And instead of complex changes, why not introduce simple formula which allow the better off in retirement to make their contribution to the challenge of maintaining the welfare state? For instance, make a presumption for tax purposes that the Winter Fuel Allowance, the Christmas Bonus (and in benefit in kind the free television licence) are an enhancement to income. In simple terms, they should become taxable. This cuts out administrative complexity whilst introducing fairness and retaining universality.

And what about a debate on higher tax payers and the relief that they receive in a number of ways, not least those receiving 40 per cent relief on pension contributions? Yes, encouraging everyone to save for retirement but providing the same standard rate of help as applies to the lower paid with a long term programme to rebalance the staggering £5bn which is currently lost to the Exchequer in such relief.

In addition, it is worth considering removing automatic age-related relief. Automatic because once you reach a specific age you no longer pay National Insurance even if you are earning well and remain in work – why should you not continue paying into the system?

At a particular age people are entitled to free prescriptions to everything prescribed, not just the long term requirement for medication which of course should continue. Those who can afford to pay for one-off prescriptions should do so at whatever age they have attained. This would not remove rights but make them applicable to those who needed the help and at the time they needed it.

Finally, make 2018 the year the living wage is introduced across the whole economy. For if work is the best form of welfare (and I believe it is) then paying people better and relying less on cash transfer through the Exchequer has to be the way forward. All those over 21 would at least look forward to earning modestly more than the minimum wage currently offers.

The debate, therefore, needs not only to take into account necessary incentives for self-help an personal responsibility but also the kind of nation we want to be, the morality we want to promote and the choices and priorities that we should pursue.

The British people have so far been remarkably tolerant in the face of the austerity programme which, without Quantitative Easing would have plunged us into deep recession, but their patience is now running out. With public services beginning to deteriorate rapidly and food banks springing up throughout our country, the General Election really is the moment to say ‘enough is enough’.

• David Blunkett served as Work and Pensions Secretary in 2005. He is stepping down as Sheffield Brightside and Hillsborough MP at the election.

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