Intergenerational Fairness — House of Commons, 2017-02-28
Topic: Macroeconomics
John David Penrose (Conservative, Centre-right): The Chair of the Select Committee, the right hon. Member for Birkenhead (Frank Field), in a typically assured and authoritative speech, began by saying, absolutely rightly, that intergenerational fairness is a huge issue. He said that the Select Committee, of necessity, had to focus on the particular area of the triple lock—it is a pretty big and important area—but that the issue is much broader than that Intergenerational fairness, or generational justice if we want to call it that, is not a brand-new concept, but it is gaining in political salience. It is an idea whose time is coming, if it has not already come. That is partly because of the changing demographics of this country, which underlie the Select Committee’s decision to consider the triple lock. We have had what some people call a "demographic time bomb" ticking away, and successive Governments of every stripe have had to deal with the arithmetic logic that that means for our fiscal future. There is an impact on the state pension, other state benefits and many other facets of our Government finances The concept of generational justice therefore provides us with an incredibly useful new moral prism through which to view our spending decisions today. My hon. Friend the Member for North Swindon (Justin Tomlinson) rightly said that it is extremely rare for Governments since the second world war to run a budget surplus. By and large, we have outspent ourselves as a nation—it does not matter who has been in government. We have overspent. We have been Mr Micawber, spending today and hoping that something will turn up tomorrow. That cannot go on because the notion of generational justice is increasingly in people’s minds, and rightly so We need to ask ourselves the moral question: if we are spending on things today that just help our lifestyle, how can it be fair on our children and grandchildren? If we borrow to support that spending, they are the ones who will have to pay for our lifestyle today, which cannot be right or fair. We will have to justify that to them when we, in turn, come to claim our state pension or state benefits I am a little more generous than my hon. Friend, because I would say that there are a few occasions when it is justified to borrow more than we receive in tax revenue, particularly where we are borrowing to spend on things that are then going to be enjoyed by our children and grandchildren, as they are going to be able to use them. People in this country today benefit from the investments our predecessors made in railways and roads. We, in turn, are investing in digital infrastructure, which our children and grandchildren will be able to use. Those things last and will yield a benefit to not only us, but future generations. The moral prism that this new concept brings means that we can then start to distinguish between things that our children and grandchildren will be able to use for their own benefit, as well as for ours, and things that only we benefit from—things that subsidise our lifestyle today. That is the new moral prism, and we would not have heard many people in this Chamber or elsewhere in our national debate talking about it even five or 10 years ago—they certainly would not have been talking about it 20 years ago That is the new concept, and it is extremely powerful and important for us. Let us suppose we start to view things through that lens and start to apply the same kinds of fiscal and financial discipline that an independent pension fund would apply to its liabilities. Let us suppose we try to value the financial liabilities inherent and embedded in the state pension and the state benefits system, just as the trustees of the Rolls-Royce pension scheme or any other private or occupational pension scheme would. What happens if we then apply those actuarial calculations to the liabilities—to the cheques we are all collectively in this place writing on our own behalf and the costs that we are therefore imposing on future generations? We find that those actuarial liabilities look, feel, sound and are economically the same as a gilt, a Government bond, a long-term liability—and I suggest strongly that it is only generationally just that we should also treat them the same. If we apply those calculations, the Government’s balance sheet—the public’s balance sheet—and the Government’s overall commitments start to look very difficult indeed That is not a comment on the current Government or on the previous couple of Governments, either the coalition or Labour. This is a comment on the way this country has been thinking and behaving since the second world war—since we founded the welfare state. If we add those actuarially calculated liabilities on to what we normally call the national debt—the stock of gilts; the stock of Government bonds in issue—we do not just get the figure of about 90% of GDP that is projected for the national debt. That level already gives people like me a nosebleed, thinking about the altitude we are going to be operating at in due course. The strain on our Government balance sheet is already high, but we do not just get a figure of about 90% of GDP as Government debt; depending on which external valuations and assessments we choose to believe, we get a figure that is somewhere between 350% and 400% of GDP It is time we started being honest with ourselves, not just across the aisle here in this Chamber, but as a society and as a nation, about the scale of the cheque that we are asking our children and our grandchildren to cash on our behalf. It means that the Government’s finances are a great deal more brittle, fragile and exposed to external shocks of the kind we suffered in the 2008 banking crisis than we have been willing to admit to ourselves. We have been a high-rolling economy of that kind since we first invented the welfare state The Select Committee Chair rightly pointed out that we could react in a number of different ways to this inconvenient truth—for example, by raising taxes or by ignoring the problem; he mentioned that, but I think his tongue was firmly in his cheek when he did so. I would like to offer for consideration one alternative that he did not mention. The only way we can deal with the generational injustice of charging our children and grandchildren for the liabilities we are building up under the state pension and state benefits system is to switch from the current pay-as-you-go system. That is a gulpingly large financial commitment, but it is also I am afraid unavoidable and inescapable once we have accepted that we have been kidding ourselves about the scale of the public liabilities that this country has been writing for itself for the past 50 years or more The only way to move from a pay-as-you-go system to a fully paid up system, which is what we already demand from the occupational schemes that we look at with some degree of envy and approval—the occupational schemes are held up by many as the apple of the pensions eye—is through a very slow and steady process. It would clearly be generationally unjust the other way around not only to charge the current generation of taxpayers the cost of supporting the pay-as-you-go system, in which we all pay for the current pensions liabilities, but to ask us to build up a fund to afford the future pensions liabilities so that we can wipe out the generational injustice. We would end up paying twice, which would be a generational injustice of a different kind and scale I make this point, then, to all those present and to everyone listening more widely: if we are serious about generational justice and about trying to make sure that we do not expect our children and grandchildren to fund our pensions and benefits, whatever we may need if we get sick or are out of work—those vital parts of our lifestyle—we need to make a long-term commitment to deal with their inheritance as well. Families do this all the time—they make commitments on behalf of their children and grandchildren. As a nation and as a society we need to start to be honest with ourselves about the size of the burden we have been and are placing on future generations, and about the fact that the generational time bomb is starting to impose ever heavier burdens. The only solution—to be approached slowly, carefully and over a very, very long timescale—is to make the commitment to switch from a pay-as-you-go system to a fully funded system, so that we can look our children and grandchildren in the eye and say, "We did not ask you to pay any more for our lifestyles."