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 24/7, and local trains from 0930. I guess the whole package is worth £700 a year to me, tax-free. Though in truth if I paid for London travel I would claim back much of it 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 for those over state pension age. 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 £42,475 – earn an extra £1 and lose £200. And it would not save much. The Government estimates that ending it for households with an income above £35,000 would save just 13.5% out of the total cost. The administrative cost could be £25 million a year or more – the amount estimated for administering the child benefit tax charge which begins on 7 January.
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 £10,500 for over 65s (slightly more for over 75s and rather less for 61 to 74s. I know it’s complicated but I didn’t invent the system). That would save more but would certainly take it away from many who needed it.
Another problem is that these are individual entitlements so the non-taxpaying husband, wife, 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 about to be imposed on child benefit recipients – and which the theoretical savings above are based on.
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, just look at the problems of the Child Benefit Tax Charge – yet to be realised.
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 failed to claim what they could get.
And finally ‘wrong’. In a way this is an extension of counterproductive. Many 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 do.
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.
Paul Lewis is an independent financial expert who presents BBC Radio 4’s Money Box every Saturday and regularly appears on BBC radio and TV news and current affairs shows. The original version of this post appeared on the Paul Lewis Money blog.