Responsible spending has long been the property of Conservative governments with opposition parties to the left clamoring for higher taxes to fund an increased array of programmes for the varying groups of people believed to be disadvantaged. But in the current odd couple British coalition government it is the social spending minded Liberal Democrats calling for spending limits on pensioner subsidies, while the Conservative Prime Minister says that such cuts are off limits.
At issue are 3 benefits in particular. TV licences, bus passes and heating subsidies. Nick Clegg, leader of the Lib.-Dem. side of the fragile coalition is pushing for reductions and eliminations of subsidies in these areas. Although rebuffed by David Cameron, his Conservative coalition partner, Iain Duncan Smith, the Conservative Work and Pensions Secretary, is also believed to understand that universal benefits for the elderly should be reconsidered as George Osborne (the Chancellor) attempts to cut another £10 billion from the welfare budget by 2017. Keep that £10 billion figure in mind as we examine this.
The TV licence is almost £150, ironically 50% off if your blind, no doubt due to some cruel logic. Pensioners over age 75 get it for free. That’s a little less than 4 million households receiving a combined total of £588.4 million in subsidies. Americans would be shocked to learn that you have to pay anything to watch free-to-air TV.
The winter fuel allowance is a benefit paid out to offset winter heating costs. All households with a person over 60 receive £200 - £300 / year. This equates to something in the region of £1.5 billion / year.
Free bus passes are also available to the over 60 crowd. Estimates are that 65%-80% of those eligible use free service 2-4 times per week. Valuating this is harder but day passes on the Wilts. & Dorset service are £4. If 6 million pensioners ride the bus 150 times / year at a £4 valuation that’s £3.6 billion / year; which is likely a high valuation.
When we do our sums we find that the complete elimination of all 3 of these subsidies would bring in only half the target amount required, and the debate here is not complete elimination of these programmes, but simply the dreaded MT words – means testing.
For some largely unfathomable reason the British have developed a complete revulsion of the concept of means testing (qualifying for benefits based on income). David Cameron in particular seems to have made it a line in the sand issue, protecting pensioners somehow from someone evaluating whether they are poor enough to receive help. Some Lib.-Dems. are with the Prime Minister on this one. The aptly named Mark Reckless MP was quoted last year as saying "I think the costs of what he’s (Nick Clegg) suggesting, of having a great new bureaucracy to administer, in effect, a wealth tax on pensioners just concentrated on these three benefits, the costs of that would be enormous – far, far greater than anything that would be raised, it would be incredibly intrusive. We don’t want to be means-testing pensioners in this way, because the people who actually save money, set aside, try and do the right thing – they’re punished, and it sends out completely the wrong message, destroys incentives and means there’s no incentive for people to save for their own retirement – that’s why we don’t want to means-test these benefits.”
Analysis of Mr. Reckless statement requires stretching the brain lobes before full engagement, less you injure them in a futile attempt to properly rationalize his comments. His argument against means testing is that people will stop saving money so they qualify for benefits. In fact, people save money because they know they need to take care of themselves and a reduction in benefit availability will increase the incentive to save.
The domestic self-governing territories seem to have a more sensible outlook on this. On the Isle of Man, pensioners under 75 who receive income support can get a free TV licence. Meanwhile on normally sunny Jersey, free licences were introduced for over 75s if they received an income under £13,000 for single people, or £21,000 for couples. Jersey in particular seems to have the best concept on this. Helping the genuinely needy, especially pensioners who have had a life of working, is a cause we should be partial to. Budgeting from the government on this should not be based on where to save another few million but on providing what’s genuinely needed.
Surveys show that mainland Brits. still oppose changes to pensioner benefits by a 65-35 margin. The prevailing attitudes underscore the fact that once people start receiving a benefit it well nigh impossible to get rid of it. Most people like getting free stuff and are resistant to giving it up even if it makes good common sense and/or is not financially sustainable. Full marks to Mr. Clegg for taking a stand on this, but public opinion does not yet demand the end of financial handouts for those who clearly don’t need it.
