IF do do that voodoo

Do do that voodoo that you do so well.

For you do something to me that nobody else could do!

You do something to me, something that simply mystifies me.

Cole Porter

Last year I wrote one of the most hit-on posts on this blog, a critique of David Willetts’ book, The Pinch: How the baby boomers took their children’s future – and why they should give it back. The Pinch has an exalted status, for example in the Spectator on 5 May, Polly Toynbee described it as an “excellent analysis of inequality between generations … [it] should be compulsory reading for the cabinet.”

So it’s no surprise that The Pinch seems to be one of the seminal texts of the Intergenerational Foundation (IF), established to promote fairness between generations. The IF is a registered charity, with no party-political allegiances. From its website one can ascertain that it is based at 19 Half Moon Lane, Herne Hill (in SE London), over the Illusioneer magic shop – “Front entrance via magic shop door, just ring the white bell”, and that it has yet to submit formal accounts to the Charity Commissioners.

Perhaps it’s the influence of the people downstairs, but the IF seems to like to do a bit of conjuring with its statistics. After all, that’s what captures an audience like the Daily Mail’s, which on 10 May ran a story headed Nearly 80,000 public sector pensioners currently paid more than average private sector WORKER. Followed by:

Around 80,000 retired public sector workers get a gold-plated pension which is bigger than the annual salary paid to the average British worker, a shocking report warned yesterday.

The Daily Mail was drawing on a recent IF report and quoted “Angus Hanton, co-founder of The Intergenerational Foundation, [who] said the report demonstrates the true scale of the ‘pension apartheid’ in Britain.” Altogether a kinder treatment than the one he received from the Mail on Sunday on 22 October 2011 under the says-it-all heading, The man who says pensioners should leave their 'empty nest' homes... and the £1.5m five-bedroom des res where his parents live alone, and which went on:

Last week Angus Hanton and his Labour-backed think-tank launched a report saying that ‘empty nesters’ should be ‘encouraged’ through a new land tax to downsize. This, it was argued, would help make room for younger generations. Not surprisingly, the proposals caused anger and concern among older people – most of whom until last week probably hadn’t heard of Mr Hanton or his Left-leaning group, the Intergenerational Foundation, which is championed by Shadow Minister for London Tessa Jowell.  

After hearing him outlining his radical ideas on the radio, they might have spared a thought for Mr Hanton’s own elderly parents. What kind of shoebox dwelling did he have them holed up in? In fact, The Mail on Sunday can reveal that Alastair and Margaret Hanton live alone in a £1.5 million five-bedroom home in one of London’s most desirable suburbs. So has their son – himself a father of four who, incidentally, lives with his family in an £850,000 house nearby – tried to harangue them into vacating it?

But going back to the more recent Mail story, the article’s title and first sentence are contradictory. The ‘nearly 80,000’ number of public sector pensioners comes from the IF report’s Figure 6 (below) – 78,186 to be exact – which it isn’t, given the omission of local government and police retirees from the data.  (The IF seem to have ignored the pensions of former MPs, ministers, judges and colonial service employees as well).

More importantly, the comparison can be made with the pay of either the average private sector worker or the average British worker but not both at the same level. Because, of course, the latter includes British workers in both the private and public sectors. According to the IF report, £25,900 is the “average annual salary” from the 2010 Annual Survey of Hours and Earnings, published by the Office of National Statistics (ONS). The latter makes it clear that in April 2010 “Median gross annual earnings for full-time employees (including those whose pay was affected by absence) were £25,900”. The median (like the mean and the mode) is a form of “average” - the one whose value is set half-way, so 50% of full-time employees were earning less than £25,900 and 50% were earning more.

So how many full-time employees, private and public, were there in 2010? According to the ONS Labour Market Statistics for June 2010 “The number of people in full-time employment was 21.10 million in the three months to April 2010”. So half of them, that is 10.55 million, must have been earning more than the median, or, as IF and the Mail like to call it, the average.

Now here’s a “shocking” thing the Mail could have got its teeth into. According to IF over 97% of the 2.25 million* public service pensioners in Britain get less than the average British worker. And fewer than 80,000 get pensions as big as the pay of the 10.5 million people who earn more than the average. Nearly half of these were in the NHS and were, presumably, mostly retired medical staff. Consultants and surgeons get modest pensions shock?

That there is a problem in the long-term in financing pensions in general, including those in the public sector, is beyond dispute. The problems which IF identify are familiar from the Hutton Report and some of the measures recommended by IF, like the abolition of final salary schemes, are already in hand. Quite why the IF report devotes so much space to the changes to the BBC's pension scheme, when no relevant statistics are quoted from it, is unclear. One of IF’s proposals might have caused some alarm to certain Mail readers, if they’d been told about it:

[The government would] Impose a progressive tax on the highest public sector pensions … without having to re-draw existing contracts [by levying] a progressive tax on public sector pensions that are above a certain threshold (for example, £20,000 per year). Two consecutive governments have set a precedent for specific taxation of certain types of income with their tax on bankers' bonuses, which was designed partly to avoid having to re--‐draw existing contracts. To ensure it was progressive, the tax rate would have to rise with the level of pension (so people on higher pensions paid more).

£20000 per year is, of course, about 75% of the “average British worker’s salary” and an awful lot less than the remuneration of a typical bonus-receiving banker.

I’m afraid this is where the magic coming up through the floorboards in Half Moon Lane must have started to turn into voodoo. Do IF not realise that anyone lucky enough to have a pension much over £40,000 would be a 40% taxpayer anyway? IF must be very naïve to think that there would be any political mileage in bringing in penal taxation of the sort they are advocating. They run a real risk of losing what credibility they have. After all, another recent IF report proposed ‘all-young-person shortlists’ for parliamentary candidates (as if so many didn’t lack experience of the real world already) and additional votes for parents. Requiring a different electoral system and the abolition of one person, one vote, these 'Solutions' really were baying at the (full) moon.

One has to concede admiration, albeit grudgingly, for the entrepreneurial zeal of those who are creating jobs for themselves and others on the intergenerational bandwagon.  "Fairness” is ultimately no more achievable than perpetual motion and underlying all the messaging about it, from IF and others, one can detect a large dose of the politics of envy and of “we want what you’ve got after a lifetime’s work, and we want it now”. Perhaps a closer study of Figure 2 of the IF report will provide some consolation to the young?  Somehow I can't imagine IF's adherents wanting them to lobby for increased inheritance taxes .

* 2,248,371 total ‘Pensions in Payment’ across the ‘Individual Public Sector Pension Schemes’, pages 14-16 of the IF report.