At one time, poverty was most prevalent among the elderly but – according to the Joseph Rowntree Foundation – poverty is now most likely to be found in younger age groups. However, for political and historical reasons a disproportionate amount of financial help is directed towards older citizens. The less noticed aspect of this is how it is the well-off elderly who are helped much more than the poorer ones.
At a basic level that’s because the help given to older people is tax-free: the Winter Fuel Allowance, free bus passes, free TV licences and free prescriptions are all received tax-free and are therefore worth relatively more to tax-paying older people (i.e. the better-off) than to non tax-payers. But it gets worse…
Perks for the better-off
Some of the benefits reserved for older citizens are only useable by those who have spare capital. Let’s look, for example, at the recently announced Pensioner Bonds, which will pay 4% interest each year while younger savers get less than 2% each year.
These higher-rate bonds are subsidised by the government and only available to the over-65s, but crucially can only be taken up by those over-65s who have cash savings to invest – so this is clearly a subsidy which is limited to the wealthier part of the older population.
Similarly, many other tax allowances which are targeted at older people – such as the tax concessions on pension saving – are more valuable to the better-off as they can afford to put more into their pension pots to get a larger financial advantage.
It helps where you live
But it gets worse still when you look at how government help for older groups works out geographically. In practice, wealthier older people are more likely to live in London and the South East of England, where historically they will have gained from larger windfalls in housing values, and where wages have historically been higher, and where the better-paying jobs have been concentrated. Yet in London many over-60s – in fact one in four – commute to work using their free travel passes.
However, for many older people the hand-outs they receive are dwarfed by the increase in the value of their homes. These asset price increases are driven by government policy which restricts building permissions and boosts home values through initiatives such as the “Help to Buy” scheme. The gains that people make from house price inflation have in recent years been more than their earnings, or as a man on a radio phone-in programme said, “My house earns more than I do.”
These gains are tax-free and – as well as being greatest in London and the South East – they are clearly biggest for those who have the largest houses. It really is a perverse case of “to those that have more will be given”, but this housing wealth redistribution is very much being directed by government.
Realigning government policy
So, what would government do if it really wanted to help?
The first move would be to reject age as a proxy for need. In other words, policy-makers could commit to spending pubic resources on the needy, whatever age they are.
Where the government did choose to maintain universal benefits for older citizens, it could make sure these are at least taxable to avoid helping the wealthy ones disproportionately more than poorer ones. In a world of Big Data when the government is capable of recording and storing every phone call in the country and of knowing almost everything about all its citizens, one would have thought that it would be quite easy to establish who is in need (including many older people) and make payments to them accordingly.
It requires leadership and political will to choose to help poorer older people rather than the wealthy ones.