Cover story: Who will break the big taboos?

Everyone agrees that the government must spend much less. And, conveniently, there are a couple of big policy areas where there is an unusual consensus on shrinking the state.

The first concerns the crisis in generational justice. Never before have affluent pensioners been more politically unpopular. The retiring first wave of baby boomers is said to have had it all: rising wages throughout their careers, free higher education, easy access to housing that then rose constantly in value, and decent final salary pensions. No wars, no serious recessions (at least for those in skilled or professional employment), and lots of sex and drugs and rock and roll.

The second is the dysfunctional social security system, which traps people on benefits and doesn’t provide the support that many need when they hit a temporary difficulty. Like the “always had it too good” baby boomer pensioners, this issue has its popular villains too—the undeserving, workshy poor.

The problem of intergenerational distribution was highlighted a couple of years ago by the Conservative cabinet minister David Willetts, but has been echoed by rioting students and Labour. There is a cross-party intellectual consensus in favour of shifting more of the costs of fiscal retrenchment from the young to the old, especially the affluent old.

But politicians who have been happy enough to complain about the outrageous good fortune of baby boomer retirees have been slower to come up with plans to pick their collective pocket—perhaps understandably as the 65-plus age group are more likely to vote than any other. What could be done? People often talk about the abolition of pension tax relief for top earners, and it would save £7-10bn a year. But any removal of incentives to save, even for the better off, may not be sensible in low-saving Britain. A better idea is making relatively well-off older people pay for social care out of their house equity, rather than forcing the state to pay so that they can leave the house to their kids. Similarly, increased land and property taxes would particularly affect the affluent boomers.

There is also a consensus among politicians from Iain Duncan Smith to Liam Byrne that social security has got out of kilter. Too many of those who receive it are damaged by it and an increasing proportion of those paying it resent doing so. Most taxpayers are happy enough to pay for the NHS and education but think that the main non-contributory social benefits have too few conditions and are too open-ended: disability benefit, housing benefit, income support, tax credits.

Indeed there has been a quiet conservative revolution in attitudes to welfare over the past two decades. According to the British Social Attitudes survey, in 2007 just 32 per cent agreed that “government should redistribute income from the better off to those who are less well off,” compared with 51 per cent in 1985. The number agreeing that it should “definitely” be the government’s responsibility to provide a “decent standard of living for the unemployed,” has fallen from 42 per cent in 1985 to just 10 per cent in 2006. Those who think that the government should spend more on benefits for the poor even if it leads to higher taxes has fallen from 45 per cent in 1988 to 17 per cent in 2003.

This is an astonishing decline. Even more striking, it is now younger people who are more hostile to generous welfare than their elders, a reversal of the long-term trend of younger people being to the left of older people.

However, the apparent consensus for shrinking welfare may not survive the first whiff of real battle. Neither Labour nor London mayor Boris Johnson seem enthusiastic about the government’s attempts to slim down the £20bn housing benefit bill (although a majority of the public approves of moving people on housing benefit from expensive areas).

Perhaps the coalition needs to offer Labour some kind of “grand coalition” deal in which it would have real influence on the details of policy for both taxing the affluent old and reforming welfare. However popular the two policies might be among the public, there are powerful lobbies (including in the media) to defend both groups.

And both also have more direct means to upset politicians— the affluent retirees through the ballot box and the poor young through rioting.