There are no revolutionaries in Europe’s streets. No communists marching on parliament buildings. If anything, the continent has seen a rightward shift over the past decade. And yet Europe is becoming the home of a reluctant, greying socialism.
In France, the new Sébastien Lecornu regime is considering a wealth tax on entrepreneurs and the rich rather than slash its gargantuan social security bill. ‘France has not known a balanced budget for 51 years,’ said the former prime minister François Bayrou last week as he was voted into political oblivion. He, like many of his predecessors, had failed to reform the pension system. ‘You can get rid of the government, but you can’t get rid of reality.’ France’s MPs disagreed. Better to kill any hopes of growth than to think about slashing France’s generous handouts.
It is the same story across much of Europe. Spain has just introduced a new levy on payroll, the so-called intergenerational equity mechanism, in order to shore up the pension system. Ireland is also salami-slicing take-home pay for its social insurance fund. The Czech Republic has introduced a sickness insurance contribution, while Slovenia has brought in a long-term care levy of 1 per cent on both employers and workers. Switzerland has increased VAT in order to fund the country’s pensioners and Denmark has introduced new taxes on financial services to pay for early retirement. Everywhere the choice is being made: more tax, more welfare.
Britain is in much the same position. It is an open secret in Westminster that new taxes are coming at the November Budget. Some reports suggest Rachel Reeves is considering capital gains on the sale of properties. Others suggest a penny or two on income tax. It’s the only way. Our welfare state, and particularly our engorged and growing pensions system, must be protected.
We learned yesterday that the state pension is set to increase by another £500 per pensioner per year, thanks to the triple lock. The formula guarantees that spending on pensions grows unsustainably. Ministers have to find the money to increase the payment, either in line with inflation, the rate of wage growth or 2.5 per cent, whichever is highest. If the Treasury’s tax take is down it doesn’t matter, governments of all colours have promised the bill will be paid. Our total projected pensions spend next year is around £150 billion. That’s three times what goes on defence.
A few hours after the pensions announcement, the FT reported that the Office for Budget Responsibility was downgrading Britain’s productivity forecasts. That means an even larger black hole at the November Budget. The solution, according to the paper? Increase National Insurance contributions or extend the freeze on income tax thresholds. Why even consider cutting welfare? Everyone knows it’s impossible. When Labour tried to reform disability payments (roughly a quarter of what’s spent on pensions) the party went into open revolt. Imagine what would happen if someone suggested means testing the state pension.
Everywhere the choice is being made: more tax, more welfare
The Tories have traditionally been the party of fiscal discipline and yet are terrified of upsetting this vested interest. Mel Stride, the shadow chancellor, was keen to defend the triple lock on Radio 4 yesterday morning. The Conservatives would not consider reforming this universal payment. They’re not alone. When I mentioned the size of our pension obligations to a senior Reform politician recently, he refused to engage, denying that my figures were even correct (it turned out he was right, the figure I quoted has since been revised upwards).
Those who talk about sound money find themselves politically unable to live up to their promises. The result is that ever more cash is taken from the working population while services grind to a halt. We also learned this week that rural communities pay around 20 per cent more in council tax than urban areas, while receiving 40 per cent less from Westminster. Surely Britain would be a better country if choosing to live outside of cities did not come with such a penalty. And yet we have a mad situation where the countryside, which skews older, goes without bus routes and GP surgeries for lack of investment. Instead, the money is pumped straight into pensioners’ bank accounts as the world around them gets materially worse.
Newspapers often shy away from criticising pensions, too. We know that our readership also skews older and no business wants to serve their customers something unpalatable. But the truth is that to pay the pension bill, taxes have to go up, which means an economy that judders ever more violently. How could it not? Europe’s pension obligations are now roughly the size of the entire annual GDP of the United States and China combined. Unless political parties across Europe are willing to end this era of geriatric socialism, then our problems are only going to get worse.
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