The End of the Bargain: Why They Are Coming for the State Pension

As often as I look over the newspapers on my trips to buy strong drink in Sainsbury, I see more propaganda about the state pension triple lock, and how this must be abolished. Since most of our readers are American, I will explain that this is a scheme whereby the old age pension rises every year by whichever is highest of retail price inflation, wage growth or 2.5 per cent. The latest mention I have seen is in The Daily Mirror.

The proposal to weaken or abolish the triple lock, I read, is a regrettable imperative that our next Prime Minister must address. Britain, we are told, has an ageing population. Healthcare costs continue to rise. Public debt has become an unbearable burden. The Office for Budget Responsibility projects steadily increasing expenditure on pensions over the coming decades, and ministers will eventually be forced to choose between higher taxes, larger deficits, or less generous pensions.

There is enough truth in this argument to make it persuasive. There are indeed more pensioners than there used to be. They are living longer. Pension spending will naturally rise. None of this, however, explains why governments are so eager to economise on promises made to ordinary people while remaining lavishly generous in almost every other direction. Economics may constrain political choices. It never determines them. Budgets are statements of priority before they are statements of necessity.

The proper question, therefore, is not why governments are looking for savings. Governments always look for savings. The proper question is why they always seem to discover that the promises made to taxpayers are negotiable, while the interests of the governing class remain untouchable.

Britain is not becoming a low-tax country. The tax burden remains close to its highest level in history. Government spending continues at levels that would once have seemed astonishing. Money remains available for foreign military commitments, for industrial subsidies, for climate programmes, for consultancies, for diversity bureaucracies, for the endless expansion of the administrative State, and for every fashionable cause adopted by those who govern us. Somehow, there is always another billion available when the interests of the ruling class require it. Fiscal responsibility becomes an overriding concern only when pensioners ask that promises made over a lifetime should actually be honoured.

This should make us suspicious of the official explanation. Demography explains why pension costs are rising. It does not explain why pensions, rather than countless other expenditures, have become politically expendable.

Nor is this just about pensions. The triple lock is the latest casualty in a much broader retreat from the post-war settlement. Every institution created for the direct benefit of ordinary Britons has been subjected to the same slow process of dilution or abandonment. Universities that once charged no tuition fees now burden graduates with debts large enough to delay home ownership and family formation. The National Health Service survives increasingly as a logo attached to a growing mixture of waiting lists and private treatment. Libraries close. Swimming pools disappear or become prohibitively expensive. Museums reduce their services. Local authorities charge for amenities that previous generations regarded as part of ordinary civic life.

Nothing disappears overnight. That would provoke resistance. Instead, every promise is made a little less generous, every service a little less reliable, every entitlement a little more conditional. The public are encouraged to regard each individual change as regrettable but unavoidable. What is rarely discussed is the cumulative effect. Taken together, these measures amount to the quiet dismantling of the political bargain on which the modern British State built its authority.

That bargain was never particularly libertarian, and many of us opposed it from the beginning. The State took an unprecedented share of national income through taxation. In return, it promised security from cradle to grave. Citizens surrendered much of their economic independence in exchange for guarantees that education would be free, healthcare comprehensive, and old age protected from poverty.

The remarkable development of our own age is not that libertarians have lost faith in this settlement. We never, I repeat, had such faith. The remarkable development is that the State itself no longer believes in the bargain. It wishes to keep the taxation while quietly abandoning the obligations. And the deeper question is why this change began when it did.

The standard explanation invokes technological change and globalisation, as if governments simply found themselves carried along by irresistible economic forces. Certainly, technology transformed production, and international trade expanded dramatically. But these developments do not explain the uniformity of policy across almost every Western country after the collapse of the Soviet Union. Governments of Left and Right followed much the same programme. Manufacturing industries were allowed to disappear. Financial markets were liberalised. Capital moved freely across the world. Production migrated to countries with lower labour costs. Immigration increased. Stable industrial employment gave way to insecure service work. Everywhere, the same policies appeared under different party labels.

The end of the Cold War provides a more convincing explanation. Throughout the decades after 1945, Western governments faced more than a military rivalry with the Soviet Union. They also faced an ideological challenge. It was not enough to defeat Communism abroad. Capitalist societies had to demonstrate that ordinary working people could enjoy rising prosperity, plus secure employment and comfortable retirement. A skilled factory worker who owned his home and expected a generous occupational pension, while watching his children achieve even greater prosperity represented the strongest advertisement for the Western system.

Once the Soviet Union disappeared, much of that political necessity disappeared with it. The old Fordist settlement—steadily rising wages and expanding middle-class security—had been expensive to maintain. Without a rival system offering an alternative, many of those who directed Western economic policy concluded that they no longer needed to maintain it. The carrot could be withdrawn because there was no longer another stable standing beside it.

The consequences unfolded over the next three decades with swift consistency. Factories closed throughout Britain and much of the wider West. Treaties like the Marrakesh Agreement accelerated the relocation of production overseas. Industrial towns lost not only their principal employers but the entire social fabric that productive employment had sustained. Men and women who had once built ships, manufactured machinery or worked in steel found themselves employed in warehouses, supermarkets, distribution centres or other low-security service occupations. Skilled producers became casual employees.

Russia experienced an even harsher version of the same process during the 1990s. The catastrophic collapse of its economy produced what Russians themselves came to call Catastroika: industrial disintegration, demographic decline, collapsing life expectancy, alcoholism and organised crime. Western Europe avoided so violent a collapse, but it travelled steadily in the same direction. Endless foreign wars generated inflation and debt. Mass immigration weakened labour markets while inflating housing demand. Asset prices rose much faster than wages. Independent wealth became steadily harder to accumulate. Each generation discovered itself more indebted and less secure than the last.

The political economy that emerged after 1990 scarcely deserves to be called capitalism in any classical sense. It combined the tax burden of social democracy with the privileges of monopoly, the rhetoric of free markets with increasing corporate dependence on the State. Wealth became more concentrated while economic risk was transferred steadily downwards. Citizens were encouraged to become lifelong debtors while the governing class spoke endlessly about opportunity and inclusion.

Seen within that larger history, the attack on the triple lock ceases to be surprising. It belongs to the same process that has transformed universities into debt factories, local government into a charging authority and healthcare into an increasingly mixed public-private system. The promise of security in old age was part of a wider political settlement. Once the settlement itself was judged unnecessary, pensions were destined to become another item marked for reduction. The State has not become poorer. Its governing class has decided instead that its obligations towards the taxpayers are less important than its obligations towards those interests on which its own power depends.

And that, rather than actuarial projections or demographic charts, is the real story behind the growing assault on the State pension. It is not an isolated reform. It is another stage in the dissolution of the post-war bargain, a bargain whose taxes remain wholly in force while its promises are quietly withdrawn, one after another, until nothing substantial is left but the bill.