IF supporter, Daniel Harrison, asks a profound question that very few people appear to want to talk about in the mass media because it exposes an uncomfortable truth: How is it that UK taxpayers are paying record levels of tax and yet simultaneously experiencing public services that appear to be severely underfunded and unable to cope?
A public sector paradox
The four-percentage point cut in employee National Insurance contributions (NICs) for the financial year (FY) 2024/25 has slightly reduced the overall tax burden from FY 2023/24. In spite of these tax cuts, the Office for Budget Responsibility (OBR) had, as recently as November 2023, assessed that the overall tax take as a share of the economy is still due to rise “in every year to a post-war high of 37.7% of GDP by 2028/29.”
At the same time, NHS waiting lists are currently over 7.5 million. No wonder then that satisfaction with the NHS is at an all-time low: The King’s Fund described “the lowest level of satisfaction recorded since the survey began in 1983” and record numbers of people are turning to private healthcare via health insurance or self-funding.
The long tail from the COVID-19 pandemic is partly the cause for the NHS’s woes (waiting lists were still 4.4 million pre-pandemic). More accurately, the pandemic merely exacerbated a longer-term confluence of: spiralling demand due to an ageing population; a post-war demographic baby birth blip; and years of public spending austerity.
But this begs the question – why do we even have public sector austerity at all? Surely we should be receiving wonderful public services given the record levels of tax we pay? And why should desperate people then have to effectively pay twice by paying for both state health care provision AND private provision to access healthcare?
Answer: A significant share of your taxes are not going towards public services
Pensioner spending and debt interest
The stark economic reality is that those higher taxes are increasingly subsidising the debts of the baby boomer generation. At least £241 billion (around 20%) of current government spending (i.e. your taxes) is not paying for public services but is instead being siphoned off to pay for largely “unfunded” state pensions and public debt interest. See Table 1.
Table 1 UK Government Spending FY 2024/25
| Pensioner spending* | £152 billion |
| Public debt interest | £89 billion |
| Total Government spending | £1189 billion |
Source: Office of Budget Responsibility (OBR) *Pensioner spending includes state pension, pensioner housing benefit, pension credit, winter fuel payment expenditure.
Just imagine if part or all of that £241 billion was actually spent on public services? We could easily have well-paid doctors and teachers with zero waiting lists and our society and belief in the intergenerational social contract would be restored.
Today’s pensioners claim that “they have paid in all their life” and deserve their pensions. The economic reality is this: firstly, the amount they paid in was only 20–30% of the amount they will eventually take out. Secondly, our “pay as you go” pension system means that the money paid was long spent decades ago on general public spending. Therefore, current state pensions are almost entirely funded out of current general taxation of today’s working-age people. Hence why it is called an “unfunded” pension system. And we have not even included here the growing burden of public service / sector pensions of Doctors, Nurses, Teachers, and other public servants, which are largely administered as a ’pay as you go’ and predominantly ‘unfunded’ scheme.
Predicted nearly a decade ago!
A 2015 UK Parliament Select Committee on Work and Pensions report called “The Intergenerational Contract Under Strain” admitted that
“The most recent UK Generational Accounts, published in 2011, estimated the intergenerational budget imbalance to be £7.6 trillion in aggregate terms. Future generations will, in effect, inherit net liabilities of just over five times annual GDP. The rise in tax revenue (or reduction in expenditure) needed to plug the gap would be around six per cent of GDP.”
A toxic combination of an ageing population, the unusually large baby boomer cohort retiring over the 2020–2030 period, compounded by government pandering to that demographic with such wonders as the “triple lock” state pension policy means that the pensions bill will put an increasing strain on public finances. These rising pensions payments and public sector debt interest payments mean that there will be a slow-motion car crash in public finances. See Figure 1 and Figure 2.
The Institute for Fiscal Studies confirmed in January 2024 that “Further tax rises and further cuts for most public services are built into current plans. But on official forecasts, this is only just enough to stabilise government debt as a fraction of national income.” Irrespective of whether Labour or Conservative win the next election, they are both going to inherit a poisoned chalice.
Figure 1 UK Government Pensioner Spending Forecast 2018-19 to 2028-29
Source: Office of Budget Responsibility (OBR) *Pensioner spending includes state pension, pensioner housing benefit, pension credit, winter fuel payment expenditure.
Figure 2 UK Public Sector Debt Interest Forecast 2018-19 to 2028-29
Source: Office of Budget Responsibility (OBR)
And to make matters even worse, the UK government is allowing people aged 40 to 73 to voluntarily top-up their National Insurance (NI contributions) – effectively ‘buying’ missed NI contribution years for £800, which will result in an extra £5,500 being paid out in their state pension – effectively taking out 7 times what they put in.
This epitomises the intergenerational injustice blighting our economy: The government is effectively running public finances like a Ponzi scheme by bribing the older electorate and then burdening future generations with the resulting massive pensions liabilities. This is immoral, unfair, and simply wrong.
Fundamentally, the baby boomers have not paid their way
It is an economic reality. Whether baby boomers like it or not, the 2015 UK Parliament Select Committee for Work and Pensions predicted as much, stating,“What research exists suggests that today’s young will be net contributors to the welfare state, while the baby boomer generation will be net beneficiaries. The effect is likely to have been exacerbated by policy decisions to protect pensioner benefits while targeting welfare cuts on working age payments. The limits of that approach have been reached.”
An undertaxed gerontocracy
Fundamentally, this is due to a one-off post-war baby boom, resulting in 3 million ‘extra’ baby boomers over and above normal birth rates. Consequently, this one-off demographic anomaly has distorted our democracy for the past 80 years. To get the vote of that large cohort, successive UK governments’ policies have been deliberately biased towards favouring their economic interests.
When baby boomers were young they enjoyed affordable housing, low taxation, free higher education, and promises of generous pensions etc. But as the large baby boomer cohort retire, we’ve increasingly become a ‘gerontocracy’ with both political parties prioritisation of the old with the pensions ‘triple-lock’ despite decades of overspending and under taxation of the older generation, resulting in £2.6 trillion of national debt plus £6.4 trillion of largely unfunded pensions liabilities. In fact, the origin of the word ‘pension’ was in a military context for “a regular sum paid to maintain allegiance”. Further reinforcing this situation, Sir Edward Troup, a former Treasury tax adviser and executive chair of HMRC admitted, “You should look to my generation, you know, I’m a baby boomer, I was born in 1955, and we have had it ridiculously good.”, and he continued, “I am part of an under-taxed generation so I’m afraid we are going to have to look at the more senior members of society.”
‘Broken Britain’ is a direct consequence of intergenerational injustice
Fundamentally, each successive generation should pay off their own debts and balance the books, allowing the next generation to pay reasonable taxes and receive public services commensurate with the level of taxes that they pay – at present there is a fundamental mismatch.
The taxes of working-age people should be going towards public services, not subsidising the old and paying off their debts like a Ponzi scheme, creating intergenerational injustice.
Some will continue to claim that ‘Broken Britain’ is due to Brexit, the pandemic, Tory rule, or even other global macroeconomic factors beyond our control.
The Commons Select Committee’s Work and Pensions report preceded all of those factors and correctly predicted what would happen to public finances in the 2020’s, proving that there is actually a much larger elephant in the room – ‘Broken Britain’ is a direct consequence of intergenerational injustice where the government are using the taxes of working-age people essentially to buy the votes and loyalty of older people – which directly works against the interests of working-age people. And it’s a vast amount of money. Our tax system redirects around £1 billion each working day from working-age people to subside the debts and liabilities of the old. That is profoundly unfair.
So why aren’t the mass media talking about the real reason for ‘Broken Britain’? It’s because it exposes how distorted our media, politics, democracy, and economy have become. Essentially there is enormous political pressure to maintain the status quo. But don’t be fooled by the attempt at gaslighting.
What we urgently need in the UK is a range of progressive policies to gradually reduce intergenerational inequality, to allow young people to prosper and flourish. Without that we risk blighting generations to come.
Daniel Harrison is an economist, analyst, and author of ‘INTERGENERATIONAL THEFT’
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