Sunday, May 19, 2024
HomeLaura PerrinsThe Laura Perrins Interview: James Bartholomew on Britain’s pensions time bomb

The Laura Perrins Interview: James Bartholomew on Britain’s pensions time bomb


James Bartholomew, writer and author of The Welfare State We’re In and The Welfare of Nations 

The Welfare of Nations is now out in paperback

Laura Perrins: The Welfare of Nations is a very thorough analysis of the welfare states of various nations, including Sweden, Switzerland and the US. You compare these with the welfare state of Britain. You have already set out its dire condition in the very well-received The Welfare State We’re In.

First I am going to skip to Chapter 8, which covers pensions, mainly because for the rising generation this must be their most pressing concern. The current pension system, much of it unfunded, represents nothing more than a massive transfer of assets from the younger generation to the older one, with particular generosity to public-sector workers. Just how bad is it and what can be done?

James Bartholomew: Younger people are going to pay out a lot of money in taxes and National Insurance to pay the pensions of their parents’ and grandparents’ generation. As if this were not bad enough, they themselves will receive smaller state pensions and/or receive their pensions at a later age. British pensions, like those of many countries, have been ‘unfunded’. The contributions of young people have been used to pay the pensions of old people. This was always an unreliable system and it is now going spectacularly wrong, partly because people are living much longer. According to one expert in this area, the cost of maintaining the current generosity of pension schemes in advanced countries would amount to an increase in government spending of 7 per cent. On past form, a combination of three things will happen:

1. Pension amounts for the current generation of workers will not be fully increased in line with wages;

2. The age at which people receive pensions will rise;

3. Taxes or National Insurance contributions will be raised.

What can be done about it? The fair thing would be for the generation which was too generous to itself to cut back on its own pensions. But politics dominates in pensions, so that is going to happen only to a limited extent.

In the long term, the idealistic thing would be for the country to switch to funded pensions with real choice, along the lines of the Singapore model. All new entrants to the state pension scheme would have their money invested into real assets: shares, bonds, property and gold. This would be for the long-term good of the nation. But it would require real moral fibre and patriotism to make the change. One generation would have to bear the cost of paying the pensions of the old while not expecting the next generation to pay its pensions in turn.

L P: Another chapter of importance and interest is on social housing. You lay out in detail how there is nothing social about social housing. It is often very badly planned and encourages criminality, unemployment and lone parenting. Social housing and planning is a profoundly Leftist idea that has inflicted misery upon generations of children. What can be done?

J B: One thing is being done right now and has been under way for many years: a reduction in the scale of social housing. In Britain, the proportion of people living in social housing has fallen from 31 per cent in 1979 to 17 per cent in 2012. That is virtually a collapse. And the same thing is happening around the world. In Germany, the decline has been even more dramatic. This is welcome.

But now the thing that desperately needs to be done in Britain is to allow permission for many more homes to be built. The cost of bricks and construction is no longer the big cost of building a home, especially in South-East England. The cost of the land and getting planning permission is far greater. We need to find a way of granting more planning permissions for building, which would bring down the cost of building land and hence of house prices. Germany, with a similar population density, has managed it. We need to learn from its example.

L P: In terms of education I think we have seen a big improvement in England, although it started from a very low level. Sweden is an interesting example, I believe, as although it is perceived to be a socialist paradise, it does have a voucher system. Voucher systems are hated by the Left as they allow poor kids to get out of bad schools and into better ones. Do you think a voucher system could ever occur in England?

J B: Free schools are a voucher system by another name. They are still a tiny proportion of all schools but they are a start. They have the scope to be expanded enormously, giving real choice to parents and incentives to the schools to be highly successful. Dramatic expansion of free schools has happened in Sweden. The key thing was this: allowing for-profit companies to set up free schools. That is what made the difference in Sweden. These companies develop expertise in creating new schools and finding innovative places in which to put them. Our government has still been too cowardly to allow for-profit companies. A second necessity is to make it very difficult for local authorities to refuse permission for these schools. In answer to your question: yes, I think vouchers/free schools will eventually expand around the country. I just wish it could happen a great deal more quickly. State schools are leaving about 17 per cent of children functionally illiterate. It is a horrendous waste of human potential.

L P: Towards the end of the book you summarise welfare states as follows: ‘Effectively, money is taken from the poor and then given back to them after a deduction has been granted to bureaucrats, who have charged them for the administration and sometimes added in instructions on where they must live, which doctor they should go to, what school their children must attend and what training course they must do.’

We have had two elections and Brexit since you wrote this book. Do you think there is any hope for the future when it comes to controlling spending, considering that both the debt and deficit are out of control?

J B: I predict a continuation of a cycle we have seen around the advanced world:

1. Spending on the welfare state in all its form expands;

2. Government spending gets so huge that a crisis is reached;

3. The government is forced, like Greece recently, to cut its spending. Alternatively, people get sufficiently concerned about the crisis to elect a government which will cut the spending, as happened in Sweden;

4. After painful cuts, an excessively high but bearable level of state spending is re-established. Then the country starts again at number 1.

The extraordinary thing about the current situation in Britain is that the national debt is extremely high, and unfunded state pensions and public servant pensions are enormous. Yet most people are not aware of how dangerous our situation is.
Britain needs a sudden access of moral fibre to face up to its problems and act. No, I am not optimistic that this will happen.

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