Press Release questioning whether winter fuel and other allowances to pensioners should be more targeted

by Dr. Ros Altmann

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WILL A GORDON BROWN PREMIERSHIP MAKE PENSIONERS MUCH POORER? IS HE BRIBING PENSIONERS WITH SHORT TERM SPENDING THAT WILL HAVE TO BE WITHDRAWN LATER?

THE CHANCELLOR’S PENSIONER ‘GIMMICKS’ COST NEARLY HALF AS MUCH AS PENSION CREDIT – THIS IS UNSUSTAINABLE

In today’s Pre-Budget Report, the Chancellor says that extending the winter fuel allowances to 2008 is designed to ‘promote a fairer society’.   However, these payments are not means tested, are tax free and even people living abroad in warm climates can still claim their tax-free winter fuel allowances!  How is that promoting a fairer society?

Winter fuel payments, and other ‘gimmicks’ have been used by the Chancellor since 1997, to offer extra help to pensioners, but their cost is enormous.  They are now costing over £3billion a year, which is nearly half as much as the £6.5bn spent on Pension Credit.

Yet, winter fuel payments are tax free and not means tested, so all pensioners benefit.  Even those living in the sunny climes of Spain and Portugal will receive their £200 or £300 winter fuel payments!!

Surely the money would be better spent on boosting the state pension, rather than offering headline catching payments which are then going to be withdrawn later. 

It is clear that such spending cannot be continued and is only feasible in the short term.

Like the earnings link to the pension credit, the Chancellor is only saying they will be maintained at current levels until 2009-10.  In fact, the official forecasts show that winter fuel and other such payments will be cut sharply in future.  By 2010, the spending will be down from over £3bn to £2bn and by 2020 to £1.7bn.  If the earnings link for pension credit is also abandoned, pensioners under a Gordon Brown premiership would be very much worse off. 

Is this prudent long term management of pensions policy?  Or is this using short term spending to gain political popularity and leaving the long term costs for someone else to cut!  If the Chancellor is seriously intending to make pensioners poorer again by 2020, then we all need to know that now.  Because that is the logical extension of the recent Treasury arguments.  And the cuts in winter fuel payments and free TV licences are already built into the official forecasts, although no-one seems to have flagged this up yet.

Source:  DWP Long term projections of public pension expenditure 
Winter Fuel Payments, Over 75s free TV licences and Christmas bonus for pensioners are itemised as ‘other pension benefits’ in the official accounts.  The figures are as follows and show sharp reductions in spending after 2008:

2004/5                       £3.1bn
2009/10                     £2.0bn
2019/20                     £1.7bn

These payments are not ‘targeted’ at all.  There is no means test and the money is paid out tax free, so it is worth far more to a top rate taxpayer than to other pensioners.
 
The total cost of pension credit, as outlined in the official figures for 2004/05 is £6.1bn, so the ‘non-targeted’ tax-free universal winter fuel and other such payments are costing over half as much as the whole means tested pension credit payments for all pensioners.

People age 60 -79 receive £200 each year, those over 80 receive £300.

If we add up just a few of the total benefits which the Chancellor pays out, the figures look as follows: (this excludes last year’s Council Tax allowance of £200 per household, free eye tests, travel etc).

Over 75s       

Free TV licence               £121
Xmas bonus                    £ 10
Winter Fuel Allowance     £200

Total                              £331

Which is equivalent to     £6.36 per week for non-taxpayers

But is worth                   £8.14 per week for basic rate taxpayers

            And                  £10.55 per week for top rate taxpayers

What is the social rationale for this?

If the Chancellor insists on means testing and ‘targeting’ why is he not doing so across the board?  This policy stance is incoherent and suggests a short term mind-set to pension issues, while trying to pretend that the long term numbers will be under control.  The only way this can work is if the Chancellor is storing up painful messages for a future Government.  That is not prudent policy management.