Politicians routinely like to accuse each other of not being honest with the public – of selling fantasies and peddling false promises. Ironic, then, that this is precisely what all of them are currently doing.
In fact, the entire Westminster class is right now engaged in perpetuating a massive, deceptive delusion: that the UK can keep spending more and more on pensions, without anyone having to foot the bill.
The figures make it blindingly obvious that spending on pensions is already unsustainable. Last year, the taxpayer-funded bill for public sector pensions hit £47bn – a record high. That is £600m more than the equivalent for the entire private sector, despite the private sector employing four times more people.
Reports this weekend suggested the figure will leap again this year, to £57bn. Even if all public sector pensions closed today, the existing bill alone would exceed £100bn a year by 2050. These revelations attracted barely any attention, so immune have we become to the eye-watering cost of Britain’s pensions.
Soon we will have no choice but to confront it. The figures are spiralling out of control, putting us on a collision course with the country’s cash-strapped reality. This isn’t a question of whether civil servants, NHS staff or local government workers deserve the pensions they are currently expecting to receive – it’s simply a fact that, like it or not, very soon we won’t be able to afford them.
It isn’t just Britain’s cushy public sector pensions that are the issue – an even bigger problem is the soaring cost of the state pension. Add them together and you find that the UK is spending around £225bn a year on pensions and pension benefits alone. That equates to £1 in every £6 the government spends.
It is not far off the yearly budgets for defence, schools and policing combined. And it’s getting worse. If the state pension continues to rise with the triple lock, then in the next 50 years, spending on the state pension alone is set to rise by a further 50 per cent, meaning that by 2070, some estimates suggest that nearly 10 per cent of Britain’s entire GDP will be spent on that alone. That is almost double the current levels. The UK’s spending watchdog is clear: this increase would put the national debt “on an unsustainable path”.
If we are to continue throwing money at pensions, maintaining the triple lock and gold-plated public sector pensions too, then our politicians must start being honest about who is going to foot the bill. Either more and more money will have to be diverted from other areas, or taxes will have to go up and up.
But this is where the dishonesty comes in: our leaders are still pretending that these trade-offs don’t exist – that, somehow, we can keep spending on pensions like there’s no tomorrow, without anyone ever having to pay for it. Even as the financial fault-lines under our feet grow wider and wider, they breezily insist that everything is fine. It isn’t. This cannot go on much longer. Not without massive cuts to virtually every other area of public spending, including the NHS, major tax hikes or unsustainable levels of borrowing.
Instead, we go deeper and deeper down the rabbit hole. Rather than act to rein in pension spending, Labour ministers boast about their decision to maintain the triple lock that sees billions each year spent on above-inflation pension increases for millions of retirees, including those already well-off. And rather than insist that chunky pay rises for doctors, nurses, teachers and train drivers were accompanied by major reform of public sector pensions, ministers just happily handed over the cheques.
To their credit, a handful of politicians have dared to put their heads above the pensions parapet. Steve Baker, the former Brexit minister, has long been warning about this problem. Even architects of the triple lock, like former pensions ministers Ros Altmann and Steve Webb, have admitted it will need to be ditched or completely overhauled. But mostly the Westminster class carry on living in their fantasy land, inviting us all to join them in this alternative paradigm where difficult decisions can be perennially delayed.
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They know it is a delusion. They have seen the figures and the forecasts and the charts. They have heard the warnings from economists. And still they continue to peddle the lie.
It is not hard to see why. The political downsides of cutting pension spending are enormous; the electoral advantages are virtually nil. When Kemi Badenoch mooted means-testing the triple lock, the outrage was immediate. Along with Labour’s disastrous attempt to restrict Winter Fuel Payments, it was a reminder of just how furious the backlash is whenever anyone even suggests limiting pensioners’ benefits.
This cannot go on forever. Sooner rather than later, politicians are going to be left with no option but to face up to reality. To avoid the problem that no one wants to be first to shatter the illusion, perhaps a cross-party national commission on pensions is needed, to give political parties the cover to start being honest about pension spending without it costing them at the polls.
There is another thing the government could do to help: get Britain having more babies again. Experts have long been warning about the plummeting birthrate, which now threatens the entire welfare state. Britain has an ageing population which requires more and more government spending on health and pensions, while the number of working people funding this through their taxes is on the verge of dropping off a cliff.
Unless something changes quickly, soon there won’t be enough young workers paying the taxes needed to pay for today’s pension bill, let alone the soaring costs that are coming. There are currently 3.4 working-age people for every pensioner; that is expected to fall to 2.7 within the next 50 years. You do not have to be an expert economist or trained demographer to see the problem, yet the government refuses to even talk about, let alone work out how it might use the tax system and childcare subsidies to help address it.
Good leaders confront problems as they arise, rather than constantly shunting them down the road until they become someone else’s issue. Finally getting Britain’s pension spending under control won’t be easy and it won’t be popular, but our politicians need to be honest about the fact that we cannot continue as we are.
Whatever path we choose to go down, the journey starts with a reality check about the mess we are in. For now, that reality is one our politicians would still rather avoid. And so the delusion continues. Until when, and at what cost, only time will tell.
Ben Kentish presents his LBC show from Monday to Friday at 10pm, and is a former Westminster editor
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