Tuesday, 26 June 2012

DON'T TAKE AWAY UNIVERSAL BENEFITS FROM THE OLD

UPDATED 26 DECEMBER 2015

Let me declare an interest. I am old enough to get the £200 tax-free Winter Fuel Payment and free local bus travel anywhere in England. As I live in London my travel Freedom Pass extends to local bus and tube travel throughout London at any time of day and to local trains from 0930 on weekdays. I guess the whole package is worth £700 a year to me, tax-free. Though in fact if I paid for London travel I would claim back much of the cost from clients and customers.

So. That’s that out of the way. Well almost. I do not in the slightest need that money. If it disappeared tomorrow I would shrug and say ‘so be it’. It would not leave me freezing in the winter and cut off from family, friends or the local library. Or, come to that, work.

So I get it; I do not need it; and the amount is small enough in my personal financial affairs that whether I get it or not is neither here nor there. So that leaves me uniquely able to say unequivocally that it would be complicated, counterproductive, and wrong to stop Winter Fuel Payment and free bus travel in England for those over women’s state pension age (see footnotes). Here’s why.

First, complicated. Who would you take it away from? Everyone who admitted they didn’t need it? Everyone called Paul? Everyone who paid higher rate tax? That would be possible but it would create a cliff edge at an income of £42,385 – earn an extra £1 or your pension rises £1 a year and you would lose £200. And it would not save much. The Government has estimated that ending it for households with an income above £35,000 would save just £270 million out of the total cost of more than £2 billion. The administrative cost could be £25 million a year or more – the amount estimated for administering the child benefit tax charge which began in January 2013.

You would save more by following what one tweeter suggested to me recently. Go down the income scale and only give these benefits to those poor enough to pay no income tax. Then the cliff edge would move down to £10,600 in 2015/16 and £11,000 in 2016/17. That would save more but would certainly take it away from many who did need winter fuel payment to keep warm in winter or free travel to see family and friends and visit the nearest town. 

Another problem is that these are individual entitlements so the non-taxpaying spouse or civil partner of a higher rate taxpayer would continue to get it. The only way round that is to impose a joint means-test such as that now imposed on child benefit recipients - and which the theoretical savings above are based on.

The same problem would be found if the payment was taxed as income. Where two pensioners share a household the £200 is split in two - £100 each. So each partner would have to be taxed separately on it. And where one partner earned, say, £1,000,000 a year and paid 45% tax on the payment a partner may have no taxable income and pay nothing. So a household where many think the payment is not needed would still keep £155 of it. 

There would also be problems where the payment just tipped someone over from being a non-taxpayer to paying tax. How would the right amount be collected if, for example, winter fuel payment pushed an individual £50 above their tax threshold and owed £10 tax? Solving those problems would be expensive and a back of the envelope calculation suggests the tax take might be less than £200 million a year. 

Now, I know your next argument. It is one I have made myself. Surely, you are thinking, surely all that Oxbridge brain power in the civil service can come up with SOME scheme to rid me of these turbulent pensioners? Well, they might. They did come up with a scheme to tax child benefit at up to 100% where a parent has an income over £50,000. That seems to have gone quite well, though many may have slipped through the net. 

So that is the ‘complicated’ bit.

Now ‘counterproductive’. The thing about these universal benefits – ones that you get on grounds of age or condition – is that they go to everyone. Those who need them do not have to declare their poverty to get them. If they do have to take that step then many simply do not claim. More than two million older people fail to claim up to £5 billion in means-tested benefits they could get if they applied. Paying them to me is the price we pay as a society so that my neighbour Marjorie, too proud to claim means-tested benefits though she needed them, at least got her winter fuel payment and free bus travel – though she could use that very little in her last years. If you means-test free bus travel and winter fuel payment then poverty among pensioners would grow as many who needed them failed to claim what they could get.

And finally ‘wrong’. In a way this is an extension of counterproductive. Some countries call the government departments that run social security or health the Ministry of Solidarity. Because state benefits represent solidarity. Between the sick and the well. Between the jobless and those in work. And, of course, between young and old. There are times and circumstances in life when the state should step in and transfer money from one group to another. Just as the childless pay for schools. The law abiding pay for the police force and the courts. And those without solar panels on their roof pay for those who get cheaper power from them. 

In summary, taking winter fuel payment and free bus travel away from richer older people would save relatively little, cost a lot in administration, increase poverty among the old, and undermine solidarity between the generations. 

NOTES
Women’s state pension age
Winter fuel payment is paid to people if they reach the state pension age for women in the September before the winter. Qualifying birthdates are listed here www.paullewis.co.uk/statepensionage/WinterFuel_AS.pdf though of course it may not last for as many years as this theoretical table suggests! In England free bus travel begins at women’s state pension age – which will rise to 63 from April 2016. London Mayor Boris Johnson has brought down the age for free public transport travel down to 60 for London residents, though the individual does not join the national Freedom Pass scheme until they reach women's state pension age. Ditto Merseyside. The qualifying age is still 60 in Scotland, Wales, and Northern Ireland. The age for free prescriptions is 60 in England. In the rest of the UK they are free for everyone.

26 December 2015
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