Means-testing pensioner entitlements: good economics, bad politics

Taking away the entitlements of wealthy pensioners may be good economics, but it would be incredibly risky for the Tory party.

George Osborne will deliver a speech today in which he will stress the need for a further £25 billion in cuts. 2014 will be a year of “hard truths” he will say:

“The year when Britain faces a choice. Do we say: ‘the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means – and let the next generation pay the bill’? Or do we say to ourselves: yes, because of our plan, things are getting better.”

The big question, then, is where Osborne will swing the axe to find the £25 billion in savings he is after.

Understandably, the government has been asked whether it plans to cut pensions or pensioner entitlements.

Almost half (47 per cent) of UK benefit spending currently goes on state pensions – more than the £48.2bn the UK spends on servicing its debt. That figure is likely to increase as the population turns increasingly grey, with half of those born after 2007 expected to live to over 100. Between 2010 and 2030 the number of people aged over 65 will increase by a staggering 51 per cent.

However the Tories have already promised to retain the so-called triple lock on state pensions until at least 2020 if they remain in power, meaning the state pension will continue to rise with inflation, wages or 2.5 per cent – whichever is highest.

As for the entitlements that every pensioner gets, these are:

£616 million for the free TV licence for over-75s; £2.2 billion for winter fuel payments; and £1.2 billion for the free bus pass.

There has been some speculation this morning as to whether the government is to scrap some of the benefits for wealthy pensioners in order to help find some of the £25 billion in cuts Osborne is after. This is in part due to David Cameron’s performance on the Today Programme yesterday, when he appeared unclear as to whether the government would commit to retaining the perks after 2015.

Downing Street has come out today, however, and said that it is ‘minded’ to protect free bus passes, TV licences and the winter fuel allowance  from means testing until at least 2020.

Despite the headline on the front of today’s Mail about ‘Turmoil over OAP benefits’, this should surprise no one. What is odd is that there were apparently senior figures in the cabinet who supported the idea of means testing. Both work and pensions secretary Iain Duncan Smith and the chancellor George Osborne are said to have wanted to look again at entitlements for wealthy pensioners.

The economic case for getting rid of some of these perks is a sound one: do millionaire pensioners really need free TV licences subsidised by those whose living standards are in stagnating or worse? There is certainly an argument to be had over the principle of means testing – i.e. does it undermine the welfare state? – but it would seem naive to think the Tory party was particularly worried about that.

No, the reason there will be no pledge to means test pensioner entitlements in the 2015 Tory manifesto is very simple: pensioners vote. Or at least they are more likely to vote than younger people.

More than seven in 10 of those aged over 65 voted in past two elections, according to today’s Times. This compares with just four in 10 of those aged 10 to 24. 40 per cent of over-60s will also vote Tory, according to YouGov.

Taking away the entitlements of wealthy pensioners may be good economics, but it would be incredibly risky for the Tory party; especially when it has been revealed by new polling that 37 per cent of 2010 Tories would not vote for the party if there was an election tomorrow. Of course David Cameron is ‘minded’ to retain perks for wealthier pensioners: he wants to win the 2015 General Election.

There is also a lesson for young people here: if more of us voted, perhaps we’d get as many ‘perks’ as pensioners. Hear that Russell Brand?

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