There are three main problems with Labour’s proposal today to cut winter fuel allowances for higher rate tax payers. First the money raised is estimated at 100 million which is peanuts in terms of the wider welfare budget let alone total government spending.
Second it begs the question; if winter fuel allowances are to be means tested then how far does the means testing go, does it stop at fuel or will TV licences, bus passes and senior rail cards come next?
Third, if middle Britain ceased to benefit from the welfare state through some of the few universal benefits that are left, how can we convince them to fund the larger part of that budget through their taxes? The worry is this is the top of a slippery slope towards US-type system of public services for the poor only, from which President Obama has struggled to escape with his health reforms.
The attack on pensioners’ allowances leaves a big question hovering over the future of the welfare state: is it for everyone, or just for the poor? William Beveridge’s 1942 report, the cornerstone of our welfare system, advocated a universal and contribution-based welfare state in the laudable hope of cementing social solidarity. Announcements such as todays alter that original aim dismantling the very universalism upon which that solidarity relies.
Labour’s announcement comes after a rising call from Tory Iain Duncan Smith and Liberal democrat Nick Clegg to either abandon pensioners’ winter fuel allowances, free TV licences and bus passes, or to means-test and tax them citing austerity, an ageing society and acute public spending pressures as justification.
Yet the winter fuel allowance is a symbol of social cohesion and respect for senior citizenship. In total it costs between £2bn and £3bn a year which is less than 2% of the total welfare budget; so, unless the means test threshold is so low as to be worthless, there’s not a chance of making major savings. Means testing is administratively costly, time-consuming and inefficient because of the many varied combinations of assets, capital and earnings among pensioners.
If it went further than Labour’s proposal today it would also create real unfairness at the cliff edge for pensioners on modest or low incomes who could lose a key component of their independence in old age.
While these benefits are trivial, relative to the whole budget, the social and political cost of taking them away could be huge: what would this say about a society of soaring bankers’ bonuses?
For lower earners these benefits are a few comforts guaranteed to them in old age, for middle to higher earners one of the few rewards received for consistent contributions to the welfare pot throughout their working lives.
Finally today’s Labour announcement raises the troubling question as to whether the Party is being dragooned into accepting Tory-Lib Dem spending plans after the next election. Ed Balls’ otherwise brilliant demolition of the catastrophe wreaked by the Tory Lib Dem scorched earth economics leaves that question unanswered in his speech today.