The politics of austerity appears to have induced an unfortunate amnesia among the British political class. For a long time the state pensions ‘earnings link’ was a totemic issue on the left – almost mythically so. For her critics, Margaret Thatcher’s 1980 decision to index the payment of state pensions by inflation rather than earnings, which radically reduced the value of the state pension over time and led to a plague of pensioner poverty in the 1990s, was evidence of her government’s indifference to hardship and commitment to dismantling the state’s social insurance function.
In practice, earnings-based indexation had only become firmly established under Labour in the 1970s: it had not been part of the pre-war Beveridge blueprint for the state pension. Nevertheless, the restoration of the earnings link had emerged by 1997 as an important test of New Labour’s willingness to reverse Thatcher’s legacy. Indeed, it ended up being one of the main reasons for the left’s distrust of New Labour, as Gordon Brown as Chancellor repeatedly refused to restore earnings indexation in order to enhance his credentials as a fiscal conservative (resulting in a controversial basic state pension increase of only 75p per week in 1999).
The Labour government did, eventually, promise in statute to restore the earnings link (the 2010 election happened before the deadline for restoration had been reached). It should also be remembered that, due to other reforms, pensioners were no more likely to be in poverty than anyone else by the time Labour left office – and for those who remained in poverty, the reason was often due to a failure to take up the means-tested benefits that Brown had made available. Moreover, the introduction of the state second pension had made the state pension system more generous and redistributive for future generations, irrespective of how it was indexed once in payment.
It is in this context that the Conservatives’ commitment to protect pensioner benefits has to be appreciated.
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Image: Ryan Morrison