Rachel Reeves is cutting £1.4 billion of pensioner welfare payments with her winter fuel payment means-test. It sounds like a big number, but it’s not.
£152 billion is a big number. That’s the total value of welfare payments to pensioners in 2024/25. It’s more than we spend on the NHS. Taking the £1.4 billion annual cut into account, by 2027, that total bill will be around £166 billion.
Relative to the wider economy, pensioner benefits are currently around 5.4 per cent of GDP. That will rise next year to an all-time high of 5.6 per cent, before dropping back to 5.4 per cent in 2027/28 – unless policies like the triple lock drive up state pension costs more than forecast.
There are perfectly good reasons for spending so much money on pensioners. Demographic change means we have more older people who live longer. A civilised country should always take proper care of its old. But it is an awkward fact that the bill for welfare for older people is rising at a time when we have fewer young people able to work and pay the taxes to fund those benefits.
Here, some people bridle at applying words like ‘welfare’ and ‘benefits’ to the largest element of pensioner welfare: the state pension. They object to bracketing that pension with state ‘hand-outs’. After all, they argue, they paid into the system during their working lives, so their state pension is really just their money coming back to them, isn’t it?
Sadly not. There are many public misperceptions about politics, but one of the biggest is that the state pension is somehow funded by the taxes of the people who receive it. It’s not.
Our state pension is unfunded, operating on a ‘pay-as-you-go’ basis. The money that pays today’s pensions comes from today’s tax revenues, which also fund other pensioner benefits including the winter fuel payment.
Put it another way: the £2 billion a year that was previously being handed to all pensioners, regardless of means, was coming from the taxes of Britain’s diminishing working-age population. If you’re a pensioner above the poverty line who objects to losing the winter fuel payment, perhaps you can explain why your children and grandchildren ought to pay more tax so the state can write you an annual cheque you don’t really need?
Quite a lot of pensioners don’t need that £200 or £300 cheque, because they’re doing quite nicely
And bluntly, quite a lot of pensioners don’t need that £200 or £300 cheque, because they’re doing quite nicely, even before the triple lock hikes their state pension by another £400 next year.
When Gordon Brown invented the winter fuel payment, pensioner poverty was a pervasive problem. Now, poverty is a far bigger problem for younger people. The Joseph Rowntree Foundation finds that children now have the highest poverty rates. Pensioners – along with working-age adults without children – have the lowest. The Institute for Fiscal Studies calculates that around 9 per cent of pensioners face ‘material deprivation,’ struggling to afford basic items including food. Among working-age adults, the figure is 23 per cent. Meanwhile, a fifth of pensioner households have total assets (including property) worth more than £1 million.
Some pensioners are poor, but a larger group of pensioners are millionaires. It is not obvious how the first group is helped by the government handing an annual £200 cheque to the latter group.
Naturally, the winter fuel row is emotive. Human beings are hard-wired with loss-aversion: our minds always focus more on what we might lose than the things we retain. But it would be nice to think that a serious country could have a grown-up conversation about government spending on the basis of facts as well as emotion. Those facts are firmly on the side of Rachel Reeves.
Comments