Tax the baby boomers, cut their benefits, or cut something elseby Paul Johnson / January 25, 2012 / Leave a comment
Published in February 2012 issue of Prospect Magazine
Good times—but now the party’s over as the health and pension costs of an ageing population put increasing pressure on spending
In response to Britain’s biggest peacetime deficit, the government is embarking on an unprecedented set of spending cuts. But we should not see these cuts as either the beginning, or the end, of dramatic change in the public sector. Not the beginning because the shape of public spending has changed dramatically in the past 30 years—and there are some elements of these plans that look like a continuation of that longer run trend. And not the end, because an ageing population is going to put ever increasing pressure on spending (see Nick Carn’s piece in our investment report).
Significant decisions have already been taken to get us out of the hole we are in. But if we are to face the coming decades with sustainable policies and a robust budget we need to start a debate about how we will deal with the challenges that await us. There are rational decisions that we can make about the role of the state and the appropriate structure of the tax system which will help us through coming decades. But we can also create huge costs by cutting the wrong spending, relying on the private sector for the wrong things and increasing the wrong taxes.