A millionaire I know has a tradition every year: he buys a bottle of vintage wine with his Winter Fuel Payment and invites friends to drink it. His point is that it’s ludicrous that people like him are given handouts by the government – and today, finally, Rachel Reeves is doing something about it by cutting it for those not on benefits, saving the taxpayer some £1.5 billion a year.
Gordon Brown brought in this payment when it was taken for granted that pensioners were significantly poorer than people of working age. Pensions were linked to inflation – there was no triple lock. Over the past 25 years pensioners have become steadily healthier and wealthier: they work (much) more. QE then fuelled an asset boom whereby property prices surged to the extent where 27 per cent of pensioners became millionaires (or lived in households headed by a millionaire).
Of course, pensioners can't eat their house value: the above is assets. What about income? As the triple lock kicked in, average pensioner income rise far faster then - and came astonishingly close to - that of workers. The Tories can take a bow for reducing pensioner poverty but the below graph shows that, collectively, the income gap fell from almost 30 per cent to under 10 per cent.
The Tories then turned pensioner support into pensioner bribes. I wrote a cover story attacking Boris Johnson’s plan to cover care home costs even for families who could easily afford them: it wasn’t about care, I said, but an inheritance protection scheme. The welfare state should not be used for that. Reeves has now axed this plan, which would have soon ended up costing £4 billion a year (so axing it is, financially, a far bigger deal than axing the winter fuel bung).
The brutal truth is that Reeves has more cutting to do. George Osborne’s notorious triple lock left a legacy where the expected rise in pension costs amounts to some £25 billion (as does the rise in non-pensioner benefits). If Reeves says she has been shocked by what she found, I wonder if anyone has shown her the below chart. It’s the ghost of Christmas future unless there is welfare and pension reform.
Bribing the elderly exacerbates generational inequality and this ended up reflected in voting patterns. The below, from YouGov, shows Labour’s share amongst the various age groups…
So we had a dynamic that was always going to be unwound by a new Labour government elected bu younger voters – a point I made in a Daily Telegraph column in April. It was an obvious move for Reeves to shave some of this spending.
Anomalies remain. Why do millionaires get free bus passes? Reeves said ‘if we cannot afford it, we cannot do it’ – and the UK doesn’t have the money to extend welfare to the comfortable. These bribes are contributing to a tax burden that is already choking the life out of the economy. Better these benefits are means tested, across all age groups.
And let’s remember that the Tories had proposed a pensioner tax cut in the campaign to offset a pensioner tax rise that Reeves will presumably now leave in place: taking the tax threshold below that of the basic state pension.
Reeves may make the overall tax burden even higher in her Autumn Budget. But the few moves she has made today to remove welfare for the comfortable is necessary pruning of a state that had ended up giving welfare to a third of all households. It’s just unaffordable. Those at the bottom need more and better support (especially in welfare to work) and there is much more to do on this score.
The Chancellor has today pretended to have recently discovered a shocking mess, and used their surprise to justify doing things she didn’t admit to in the election campaign. But when it comes to cutting back welfare for the wealthy, this is a progressive reform that the Tories ought to have carried out some time ago.
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