A raid on pensioners would destroy growth. Here’s the proof

Prosperity is a dangerous thing in Britain this year. The Government is desperate for cash, and anyone with plenty of it can expect to be in John Healey's crosshairs. The Chancellor is inundated with calls for fresh raids on the banks, on energy companies and on pensioners. In one way, this is sensible. If Healey wants to take money off people, he might as well go after those with more of it. In another, it risks being hopelessly self-defeating. Hammering Britain's few successful industries would undermine what little growth there is in the economy. So what about going after prosperous, older households instead? The Institute for Public Policy Research (IPPR), a think tank, has proposed just this. Making pensioners liable for National Insurance contributions would take some income off retirees, while jacking up wealth taxes – on capital gains or property – would take from those who have saved, invested and benefited from rising asset prices. But economists have warned that while raising taxes on pensioners may be tempting, older generations now have outsized spending power – spending that increasingly keeps the economy ticking over. Certainly, there are signs that older households have more, and are prepared to spend it. Saga, which sells holidays, insurance and more to people aged 50 and older, is booming. The company has more than tripled its value in the past year, making it one of the best performers on Britain's stock market. Its customer base is growing, as is the amount they are willing to spend. Michael Hazell, Saga's chief executive, calls it "a highly attractive market with an affluent, thriving and growing demographic". "People over 50 already make up 38pc of the UK population. And over the next 30 years, that will increase to almost 50pc," he told the City this year. Some customers have three, four or five cruises per year with the company. This is only one corner of the economy, but it is an increasingly valuable one. Unlike pensioners, large portions of Britain's business population have been taking a beating. Retailers are under the cosh. Shops are selling no more goods now than they were before Covid, indicating a six-year stagnation. Given that there are a lot more people around – the population grew by 2.9 million between 2019 and 2024 – this suggests that each one on average has suffered a blow to their material standard of living. Inflation is a major factor: consumer prices have risen by almost one third since the eve of the pandemic. Workers and young families are now saving whatever money they can. Story Continues All this means that the economy – driven by consumption – relies increasingly on older households. Those aged between 65 and 75 spend more per person than any other age group, according to the Office for National Statistics. Everyone's housing costs – such as energy, rent and mortgage interest payments – have soared since the start of the pandemic. Older people typically spend more on fun: alcoholic drinks, restaurants and hotels, recreation and culture. By maintaining or increasing their discretionary spending, on average, it is these older households who are keeping the economy going by purchasing more goods and services beyond the bare essentials. That chimes with the experience of Diageo, the drinks titan. Hannah Brooks, its chief strategy officer, told analysts last month that "middle-income consumers" in the UK were under pressure. She said: "About 12 months ago those consumers in both the US and Great Britain would have been in surplus. They would have slightly more money per month coming in than going out. That has flipped in the past 12 months. "This is a consumer group that is now very stretched, increasingly using debt to protect lifestyle, but they are feeling squeezed." But older customers buy more than the youngest, boding well for future sales. Diageo lists ageing populations among its "fundamental drivers of market growth". "We are therefore quite confident from a spirits' perspective that, as populations do age, we have that little bit more protection," Ms Brooks said. Richard Lim, at Retail Economics, says older families tend to be more cautious than optimistic younger people, but are also the ones with the greatest ability to spend. "Willingness to spend is higher across younger generations," he says, "but the older generations are spending with more consideration – they are more thoughtful about the areas that they are spending on." What matters more for the wider economy is whether those customers have spending power to act on their wishes. Lim says: "Younger generations typically have lower levels of income and spend what little income they have." By contrast, the older generation has had longer to save up, and thus typically has more money to spend – if they want to. At the last count, households headed by a 55-to-75-year-old had an average wealth of around £500,000. That compares to around £300,000 for those aged 45 to 54, falling to £110,000 for 25- to 34-year-olds. Many older Britons have paid off their mortgages, which in turn insulates their spending power from the ravages of the rental market or higher interest rates. Almost three quarters of people aged 65 or older are mortgage-free owners. By contrast under-25s are more likely to rent privately than to own or to rent from the authorities. Not every retiree is living in the lap of luxury: 15pc of over-65s are social renters, 6pc private renters and 5pc have a mortgage. Those can be tough positions on a state pension alone. Nonetheless, over-50s are "the growth market" of the future, according to David Sinclair, the chief executive of the International Longevity Centre. The organisation estimates that by 2018, over-50s were responsible for just more than half of spending in the economy. By 2040, they are on track to account for 63p of every £1 spent in Britain. Tapping the old rich for cash will become increasingly tempting for the Chancellor. Older people are cautious, which makes their expenditure more vulnerable to tax raids. Speculation about a raid on pension pots before Rachel Reeves's 2025 Budget prompted some to act radically, withdrawing sums to avoid losses to the taxman. Fresh moves to hit pensioners would risk further harm, this time to spending – undermining what little momentum the economy has, and the very growth the Healey needs to stand a chance of bringing the country's finances back on track. Try full access to The Telegraph free today. Unlock their award-winning website and essential news app, plus useful tools and expert guides for your money, health and holidays. View Comments