Grey Power Time Bomb
Political parties are being held to ransom by older voters. And it’s the young who are paying the price
Over the summer, there was much fuss about the European Union’s population projections. These showed how the UK population was expected both to rise and to age. In the EU as a whole there are projected to be only two people of working age (15-64) for every person over the age of 65. Given most of Europe’s appalling record of ensuring that those of working age do actually work, this is a matter of serious concern.
There was little comment, however, on the potential impact of an ageing electorate. Given the absence of democratic accountability in the EU, perhaps this is not a concern for the European Commission. British democracy has had fewer and fewer checks and balances as time has gone on. It evolved slowly out of a system that required the ownership of property as a qualification to vote. By and large, British democracy was effective in protecting property ownership in its early days. However, over the past couple of generations, groups of voters have increasingly used their democratic power to impose their will on others. From the penal rates of taxation of the post-war period, to the banning of smoking on private property, any action is seen as legitimate as long as a democratically elected government supports it.
There is a danger that over the coming generation, older voters, most of whom receive the majority of their income from the state, will plunder the smaller number of younger voters who pay taxes. In any event, Western economies will suffer tax increases to pay for the increased costs of pensions, health and long-term care. But this will be reinforced by the stranglehold older people will have on the electoral process. Pension and welfare reform will become impossible and, indeed, policies will be adopted that lead to far more government resources being allocated towards older people.
The grey vote is already being mobilised in many countries. In the US, the American Association of Retired Persons provides a huge range of advocacy services on behalf of older people, many of them in the political arena. Germany’s Grey Panthers even formed their own political party, which was recently dissolved as a result of a funding scandal: in that respect, at least, it was clearly no different from many other political parties. However, it is a mistake to think that the grey vote has to manifest itself in distinct political groupings. Grey power is normally wielded by persuading traditional parties to move their views closer to the concerns of the old.
It might be thought that older voters do not tend to vote in their own interests but, instead, vote according to strongly-held political principles or in the “general interest” of society. Unfortunately, that is not true. Although people vote differently for a whole raft of reasons, the principled or habitual Conservatives tend to cancel out the principled or habitual Labour supporters, leaving electoral interest groups with significant power at the ballot box. Indeed, even if people think they are voting in society’s wider interests, in reality they often simply use that motive to justify prior views and their own self-interest. Younger people are more likely to vote for increased finance for students and older people are more likely to vote for free bus travel for the elderly.
Older people might be intrinsically more conservative – and inclined to vote Conservative – than younger people. However, this does not mean that, as the population ages, we are more likely to have Conservative governments following policies that involve reducing the size of the state. Most Conservative voters do not understand the term “Conservative” to mean a consistent set of policies based on the principles of free markets and low taxation. What is happening is that in order to attract older voters, the parties are offering near-identical platforms designed to attract older people. The support of older people for the Conservatives does not translate into support for Thatcherite free-market ideals.
This is clear from a consideration of the 2005 manifestos. That election was notable for the fact that the major political parties had few explicit promises. However, there were particular, and sometimes bizarre, pledges to older people. These included proposals to exempt older people from specific taxes; to provide the old – whether poor or not – with free bus travel; to relink pensions to earnings; and for government to pay more towards long-term care.
More generally, in the recent past, there has been a significant redirection of government spending from the young to the old. The young have seen a reduction in support for higher education and the old much higher welfare benefits. In addition, recent changes to state pension rules will remove contracted-out National Insurance rebates from young people, who are currently able to save the money from the rebates in private pension vehicles: the resources will be redirected towards paying higher pensions to those people who are already retired. All this is on top of the substantial increases in spending on the NHS – something that mainly benefits the elderly. Between 1997 and 2010 spending will have tripled, with the proportion of national income spent on the NHS increasing by about 50 per cent.
Changes to taxation have also hit the young hardest. Married couples’ allowances were removed for young people but not for older people; and older people have much higher personal tax allowances. When the married couples’ allowance was abolished by Gordon Brown in 2000, the change was deliberately designed to discriminate against the young and the allowance was kept for older people. There can be no justification for keeping the allowance for older people, and the move was simply a sop to grey voters.
All this is not remotely surprising. Theory and evidence suggest that the old are an especially powerful interest group in electoral terms. Their specific interests, as far as government policy is concerned, are relatively focused – on issues such as pensions, long-term care and health. Younger people tend to have a much wider range of interests when choosing how to vote, such as tax levels, education, regulation and all the factors that affect property prices. When a large voter group has coherent interests, it is much more effective at getting its own way. Indeed, to have considerable power, such a group does not necessarily have to be in a majority – being in a significant minority is quite sufficient. But the numerical strength and influence of grey voters are growing.
The proportion of UK voters over 55 has already reached 35 per cent – and projections suggest that this will rise steadily to over 50 per cent in 2050. More alarming still is the tendency of the young not to vote. About 75 per cent of the over-65s cast a ballot, yet fewer than half that proportion vote among the under-24s. This trend can be seen across most developed democracies.
If allowance is made for age-related differences in turnout, the proportion of active voters over 55 will be 50 per cent within 15 years and nearly 60 per cent by 2050. Although it might be thought that immigration will get us out of this hole, it will not, because migrants have a tendency not to vote. Indeed, as we have seen in a number of countries, including the Netherlands, large-scale immigration brings about its own electoral pressures that may lead to its limitation.
Based on the same population projections, the average age of voters will rise from 46 to 53 over the next 30 years. After allowing for the increased tendency of the elderly to vote, voters’ average age will rise to 58. As the electorate ages, more voters will benefit from an increase in state pensions and other benefits yet only have to make a few years of the requisite higher NI contributions and taxes necessary to finance the increases.
Calculations can be made to show the financial gains to voters of average age successfully voting to increase pensions, and there is much impressive academic work in this field, especially emanating from continental Europe. Serious cross-national research has shown that for every year by which the average age of voters increases, government spending on pensions increases by 0.5 per cent of GDP. This would translate into an increase in pension spending of £45.5bn per annum in the UK over the next 30 years (at today’s prices).
This problem of an ageing population is not, of course, confined to the UK. In many continental European countries the trend is even starker.
In New Zealand the proportion will level off at about 42 per cent. But in Germany and Italy the proportion of people over the age of 55 will be more than 50 per cent in less than 15 years. Average retirement ages are lower in most continental European countries. Even without making any allowance for differential turnout, the majority of the electorate in most of Europe will be retired or close to retirement within a few years. The total proportion of voters who are economically inactive (due to unemployment, education, disability or choice) will, of course, be much greater. Bosnia-Herzegovina faces special circumstances – high levels of outward migration. But this is quite common in Central and Eastern European countries. The lopsided nature of their demographic profile is very worrying indeed.
A perfect storm is brewing. Europe desperately needs pension reform. But who is going to vote for it? Are turkeys going to vote for Christmas? The evidence from many countries is clear. As the population ages, older people use the ballot box to transfer resources to themselves from the younger generation – and it is happening already in the UK. The outlook will be very difficult for any party that wants to reduce public spending in general and it will be even harder for parties to resist transferring economic resources to the old.
There is one type of pension reform that has proved possible, though. There are clear lessons from this, too, which reinforce much of what has already been said. A number of countries have tried to keep pension costs under control by increasing the age at which state pensions are paid. These reforms are important and can prevent the bills from increasing as rapidly as they otherwise would have done. Reforms along these lines are even progressing in countries with an entrenched public spending mentality, such as France, Italy and Germany. In Sweden, increases in state pension age have been combined with more radical reform. However, each of these reforms has an important common feature. The bill has been planted fairly and squarely on the younger generation.
This has happened in the UK. Former Conservative ministers Peter Lilley and David Willetts often still marvel at how the rise in the retirement age for women to 65, passed in 1988, raised barely a whimper among the electorate. But no wonder. The reform would not be fully implemented until 2020, so that only women below the age of 33 in 1988 were fully affected. They represented a very small proportion of the electorate. In the pension reforms that have been adopted in some South American countries and the former Communist states of Central and Eastern Europe, the young have often had an enormous burden placed upon them. In many countries there has been a move from pensions paid out of the social insurance taxes of the working generation to pensions pre-funded by saving. When the system has been reformed, the young have simultaneously had to save for their own pensions in the reformed system, while still paying the taxes to fund the pensions of older people in the old system. Young voters are often so pleased to get rid of the old-style social insurance systems that they will willingly make this sacrifice. However, it is notable that in the case of nearly all pension reforms, older voters have been completely exempted from the costs of reform.
The young are being systematically plundered by the old exercising their power through the ballot box. Contrary to the traditions of early British democracy, our current democratic process, mature in both senses of the word, knows virtually no constraint on the power of one group of voters to dispossess another.