Tag Archives: pensions

Letter to a friend considering how to vote in the Referendum

I published this letter on Facebook on 22nd June 2016, the day before the Referendum. I think it is still worth considering since the issues continue to bear weight as Brexit proceeds.

Letter to a friend in my generation (let’s say aged 50-75) considering to vote for “leave” on 23rd June.

My dear friend,

I know you care deeply about this country, and for that reason have decided to vote leave. I’d just like to offer you some considerations relating to the younger generation that might lead you to reconsider.

To put it bluntly, even abstracting from the referendum, we are giving the younger generation a rotten deal.

  • We are dependent on the goodwill of the younger generation to pay for our pension, through their taxes in the case of social security, and through the generation of corporate profits for a funded scheme. As you know, the population is getting older so the young are required to finance our pensions against a background of worsening demographics. That means they will pay higher contributions for their same pension just to support us. ·
  • Meanwhile, the type of pension they will receive is much less generous than what our generation was typically offered. No more final salary schemes, except in the public sector.
  • The young are burdened with future taxes to pay off the government debt which we have accumulated. We won’t pay so much since the tax regime on the elderly is very generous. We don’t pay national insurance once we retire, for instance.
  • The young also face ever-heavier costs of a university education. Those of us who went to university in the 70s had grants available, especially if our parents were poor. Not the case now, with students accumulating debts of £40,000 or more after a university education.
  • Especially in London and the South East, the young are priced out of owning residential property. We may add to this the impact of quantitative easing (QE) on asset prices which benefits the older people who hold financial assets.

So what has this got to do with the referendum you may ask? A great deal. 90% of economists agree that the Brexit would be extremely damaging to the UK economy, not least due to the damage it will inflict on the financial services sector and the car industry, as well as exporters more generally.

“Prosperity on an unimaginable scale” as promised by the “leavers” is much less likely than job losses close to a million in the short run as uncertainty hits investment, and a crippled economy in the long run due to trade barriers and loss of inward investment, with all that means for financing of public services. The idea that the EU will give a soft trade deal to the UK is not plausible since that would give an open door to further defections and that dissolution of the EU itself, contrary to the vital national interest not least of Germany. Meanwhile, we would be very weak in negotiating future trade deals with countries such as China and the US (as Switzerland has found) as opposed to through the EU, simply because we would lack bargaining power.

And who would be most hit? The young people of course. It is the entry level jobs that are most vulnerable in a major recession. We risk creating a “lost generation” of young people by our own deliberate choice, if we leave the EU. Is that a legacy you would like to pass to your grandchildren?

And what about immigration you may say? Isn’t that bad for the young since they “take jobs”? I contend it is not. First, free movement of labour is a two way street and leaving the EU would block our young people from the opportunities you and I had to study, work and live in the rest of the EU, whether we took them or not. Second, immigration benefits young people as immigrants who are typically young taxpayers help share the burden of paying pensions to you and I, and also repaying the public debt. Third, the idea that immigrants take jobs from natives is simply wrong. It’s what economists call the “lump of labour fallacy” that there are a fixed number of jobs that means one persons gain is another’s loss. In fact immigrants bring new demand into the economy that creates extra jobs for young people – and some set up their own companies that employ many.

The housing crisis is not due to immigrants either. Successive governments, of all political persuasions, have failed to build enough houses. Demand has outstripped supply and house prices have soared, far out-pacing wages, leaving the young as “generation rent”. Indeed, the demand for houses is related to the number of people (and so by extension – immigration) much less than most people realise. By far the most important determinant is real incomes. As people get richer they try to buy bigger and better houses and if we do not build them, the real price of all houses goes up. There is even evidence that immigrants demand less housing than long-term residents, given their incomes.

The UK’s fundamental economic difficulty is in my view low productivity due to inadequate education of the bulk of young people (and banks that don’t provide appropriate finance for firms). We have been admiring Germany’s system of advanced technical education in skills for those not going to university since 1870 but have been unable to emulate it. Reasons for this are clearly nothing to do with the EU, but could in my view link to the dominance of private education and a social disdain for industry that may come from the aristocracy. In Germany (and France and Switzerland) engineers – and skilled tradespeople like plumbers – are highly respected and this hugely benefits their economies, while we turn out graduates in arts – and economics – leaving many of those not going to university without skills. This problem will in my view not be resolved by a bonfire of regulations and likely reduction in public spending that “leavers” seems to advocate. Rather, it will need more public spending on education in the long run interests of the economy, generated by the growth we can achieve by remaining in the EU.

Young people know all these things. In a typical poll, 75% of 18- to 24-year-olds say they support remain, compared with 38% of 50- to 64-year-olds (and 34% of those aged 65 and over). They will have to live with the consequences for many more decades than the rest of us. But they need our votes too. Don’t their views – and their interests – deserve weight in our decisions?

Let’s remember the early 70s. That mythical time that “leavers” want to return to. Don’t you really remember what it was like? Inflation of up to 30%. Strikes crippling the economy and daily life. A runaway “Barber boom” that ended with having to call in the IMF to bail out the country. And why have we avoided this since? Yes because of Thatcher’s reforms and the independent Bank of England, but also the Single Market that Thatcher herself inspired, and which has led us to unprecedented levels of prosperity and full employment, despite the subprime crisis. Do we want to go back to the 1970s?

And finally, many people older than us in their 80s and 90s, who remember the horrors of the second world war, reflect on the last 70 years of peace on our continent, thank the EU for helping it be so. Large numbers of us “baby boomers”, so lucky to have never experienced bombing, starvation, and evacuation, risk to ignore the most important thing of all: our freedom and that of our future children to exist without armed conflict.

So there you have it. We offer the younger generation a poor deal already due to the burden of pensions, university loans and house prices. And this will be worsened immensely by Brexit, both economically and politically.
Let’s not have it said of our generation “the middle-aged want a divorce and they don’t care that it’s the children who will suffer most”.

I sincerely urge you to vote remain.

With kind regards, Philip