Should pensioners pay more tax?

Lindsay Scott considers a new report from the Fabian Society that says old age is no longer a proxy for poverty and pensioners should pay more tax.

Senior couple worry about money

Pensioners should “share the pain” of austerity cuts and pay more tax to promote inter-generational fairness in the housing market, because high levels of home ownership among older people is unfair as middle-income workers’ wages stagnate and they cannot afford to buy a home.

This is the gist of a report produced by the left-of-centre think tank, the Fabian Society, which analysed data from the English Longitudinal Study of Ageing (Elsa) and came up with recommendations such as increasing pensioners’ taxes, cutting benefits, introducing a tax on property wealth and scrapping the Westminster Government’s “triple-lock” guarantee, which keeps pensions rising in line with the highest measure of inflation.

The paper, part of a series produced for the Hanover housing charity, suggests that the majority of older people are neither wealthy baby-boomers with “a surfeit of wealth and leisure” nor “pensioners on the breadline facing poverty, isolation and ill health”, so there should be a “presumption of equality” as “old age is no longer a proxy for poverty”.

Some of the Fabian Society’s suggestions may be worth exploring – it can be argued that it is illogical for wealthy pensioners to get untaxed hand-outs such as winter fuel payments while welfare payments to millions are squeezed. Benefits in kind, such as bus passes for people aged over 60 and free television licences for those over 75 are also something that could potentially be taxed.

But universal benefits can only be clawed back in tax if people have sufficient income, and the fact is there are only around 200,000 UK pensioners in the higher rate tax bracket and most of the country’s 11 million plus pensioners have much lower incomes, so the amount of money raised would not amount to anything near the £7.2 billion annually that the report predicts.

Scotland’s 1.2 million pensioners have undoubtedly made a significant contribution to our society and economy and will continue to do so in years to come, and it can be difficult for older people to change their financial plans as their options are likely to be very limited. They have also contributed national insurance payments throughout their working lives to receive in return a state pension that ensures a financial safety net but little more. So we shouldn’t be sparking inter-generational conflict by punishing home-owning pensioners – forcing them to downsize or face ever-higher taxes, but rather should be addressing the reasons why home ownership is decreasing among younger groups.

Supply is not meeting demand partly because planning laws are too stringent and stamp duty rates are sky-high. Perhaps another reason for younger groups not owning their own homes is the high and rising cost of housing in England and Wales, and particularly the south of England. Among those in the bottom half of the income distribution graph, housing costs are 25% higher in England and Wales than Scotland. A decade ago the gap was 10%.

Remember, everyone ages, so whatever taxes are introduced for today’s pensioners will also affect future generations of pensioners. It is fundamentally wrong to shift the burden onto a single group, regardless of which generation it is. People in later life are no more advantaged or disadvantaged a group than any other in society.

Lindsay Scott is Age Scotland Communication and Campaigns Manager

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