Munich Personal RePEc Archive

Pensioners' travel concessions - a misallocation of resources

Musgrave, Ralph S. (2006): Pensioners' travel concessions - a misallocation of resources.

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Everyone has a soft spot for pensioners. This probably explains most peoples’ unquestioning approval of pensioners’ travel concessions. However, it is argued here that concessions do not make sense because pensioners would be better off with the cash equivalent of their concessions. Concessions involve inefficiencies of which the following are the main ones.

First, there are good arguments for some subsidies (e.g. health and education). These arguments do not apply well to pensioner travel. For example in the case of health, many people in the absence of the National Health Service would face sudden large bills for medical treatment. In contrast, the bill for essential travel, like going to the shops, is a predictable and modest weekly expense of the same order as the weekly cost of food ( for which pensioners are not given concessions ).

Second, about three quarters of the money spent on concessions is wasted in that it goes on transporting those who could afford the full fare or who are on non-essential journeys. In contrast, under a no concession scenario only about a quarter of the expenditure is wasted. Also, concessions are a poor means of supplying transport facilities to pensioners since about a third are not well served by public transport. In contrast, under a no concessions scenario, virtually all less well off pensioners get “transport subsidy money” since this money is contained in an increased state pension. Under a no concessions scenario, pensioners can spend their “subsidy money” on for example home delivery of groceries, taxi trips or subsidising relatives’ car running costs where the latter do the shopping.

Fourth, social exclusion is often used to justify concessions. It is shown that abolishing concessions, far from increasing social exclusion, might even reduce it.

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