Why the Tory plan to axe pensioners fuel benefits is as flawed as Labour’s Ed Balls up

Tory manifesto

Tory Manifesto: An Ed Balls Up on fuel payments for pensioners

 

CROSS POSTED ON  BYLINE.COM

This  is the extract from the Tory manifesto relating to plans to axe the £200 a year payment to all pensioners and the £300 a year payment to those over 75 . The plan is stolen from the Labour manifesto of 2015 and was originally proposed by Ed Balls to “save £100m “.

we will target help where it is needed most.So we will look at Winter Fuel Payments, the largest benefit paid to pensioners, in this context. The benefit is paid regardless of need, giving money to wealthier pensioners when working people on lower incomes do not get similar support.

So we will means test Winter Fuel Payments, focusing assistance on the least well-off pensioners, who are most at risk of fuel poverty.

Fine words but very difficult to implement. Why?

Four years ago I investigated how Labour could implement the same policy – and found it unfair and unworkable. This is what I said:

“As a punter and pensioner who pays higher rate tax because my freelance earnings top up my pension I expected to be one of the people targeted by Ed Balls. In fact it will have zilch effect, a load of old Balls if you like.

Let me explain why. The fuel allowance is currently paid to individual pensioners with a cap of £200 per household. So for a start I only receive £100 of  fuel benefit. The other £100 goes to my wife, also a pensioner, who is a standard rate taxpayer. So his planned saving will be halved anyway in my case.

But it is actually worse than that. My wife became a pensioner before me and was entitled to the full household fuel allowance in her own right. So when I was on The Guardian, ( then on just over £80,000 a year) our household was receiving then  a £200 fuel subsidy for a short time. What will happen under the Balls changes is that my wife will get back the full benefit of £200 – so we will still continue to receive exactly the same subsidy.

I suspect I am not alone. I know of many people around me in the shires, where in traditional families of that generation the main earner is the male who will  pay high rates of tax. His spouse who brought up the children, and did part-time work instead, would be a  standard rate taxpayer. These wealthy households will continue to get the subsidy.

Ed Balls

Ed Balls in more serious mode

Now Ed Balls could get round this by imposing a household cap equivalent to the income level set by the higher rate of tax. But if he does this he will run into fresh problems.”

I chased this up with the Inland Revenue.

They confirmed four years ago that they do  not collate figures showing how many households have higher rate and standard rate taxpayers who are currently eligible for winter fuel payments. They do not need to collect the information as taxpayers are assessed individually. So they don’t know the breakdown. The only figures they have are the number of higher rate taxpayers who are pensioners. I doubt anything has changed.

Theresa May

Theresa May:Leader of the Tory party. Pic credit:BBC

So how are the Tories going to do this. They could scrap the present system and go back to the old fashioned 1950s style tax system- where the man had to fill in the form for the household. But that would be deeply regressive, anti feminist and take no account of modern relationships where couples may not even be married or have  a gay partnership.

They could limit payments only to those claiming pensioner credit – removing all other pensioners- but that would hit the JAMS – just about managing pensioners with a huge hole in their income and be deeply unpopular.

Or they could  say every person has to fill in a means test form – which means even if it was done on line – have to employ more staff at a huge cost just when they want to axe more civil servants.

It ain’t going to work and will be deeply unpopular and  be full of anomolies.  In other words Theresa May has just created another Balls-up.

An Ed Balls up on rich pensioners benefits

Ed Balls explaining his balls up on rich pensioners: Pic Courtesy:Left Foot Forward

Ed Balls explaining his balls up on rich pensioners: Pic Courtesy:Left Foot Forward

Update: Since posting this comment  the Labour Party have formally adopted this policy of taking away winter fuel allowances from higher rate pensioners.

 But the Revenue have confirmed that they do  not collate figures showing how many households have higher rate and standard rate taxpayers who are currently eligible for winter fuel payments. They do not need to collect the information as taxpayers are assessed individually. So they don’t know the breakdown. The only figures they have are the number of higher rate taxpayers who are pensioners. He does have  a parliamentary answer from the department of work and pensions based on an estimate for the £100m savings but it does not deal with the situation outlined below.

I am  used to David Cameron shooting from the hip with knee jerk, ill thought out policies to respond to public opinion but I thought that Ed Balls would be cleverer than that.

Evidently not. His latest pronouncement  promises to save £100m by withdrawing winter fuel payments from pensioners who pay higher rates of tax sounds good. Labour expected this to show they are being tough on the rich and offering savings. Actually it will do neither.

As a punter and pensioner who pays higher rate tax because my freelance earnings top up my pension I expected to be one of the people targeted by Ed Balls. In fact it will have zilch effect, a load of old Balls if you like.

Let me explain why. The fuel allowance is currently paid to individual pensioners with a cap of £200 per household. So for a start I only receive £100 of   fuel benefit. The other £100 goes to my wife, also a pensioner, who is a standard rate taxpayer. So his planned saving will be halved anyway in my case.

But it is actually worse than that. My wife became a pensioner before me and was entitled to the full household fuel allowance in her own right. So when I was on The Guardian, our household was receiving then  a £250 fuel subsidy for a short time. What will happen under the Balls changes is that my wife will get back the full benefit of £200 – so we will still continue to receive exactly the same subsidy.

I suspect I am not alone. I know of many people around me in the shires, where in traditional families of that generation the main earner is the male who may well pay high rates of tax. His spouse who brought up the children, and did part-time work instead, would be a  standard rate taxpayer. These wealthy households will continue to get the subsidy.

Now Ed Balls could get round this by imposing a household cap equivalent to the income level set by the higher rate of tax. But if he does this he will run into fresh problems.

The text of his speech reads:  ( see http://www.labour.org.uk/striking-the-right-balance-for-the-british-economy)

“can it really remain a priority to pay the Winter Fuel Allowance – a vital support for middle and low-income pensioners – to the richest 5% of pensioners, those with incomes high enough to pay the higher or top rates of tax?

We believe the winter fuel allowance provides vital support for pensioners on middle and low incomes to combat fuel poverty. That’s why we introduced it in the first place.”

If he does this he will have misled people in this speech because this would mean that two pensioners with say a combined income of £44,000 will lose the allowance – extending the cuts  right into the middle-income group – the so-called ” squeezed middle”. Millions more people will be hit than Labour claims. Or he could change the entire tax system going back to household not personal incomes, which would be enormously costly.

This proposal seems typical of a metropolitan political elite.  Ed Balls and Yvette Cooper are both high rate taxpayers – just like David and Sam Cameron – and would expect to be hit when they reach retirement age – probably 75 by then. But the rest of the country is nothing like that.

Either you are going to hit more households and take away the benefit from standard rate taxpayers or leave a proportion of wealthy households still receiving the fuel allowance. And the Parliamentary answer does not provide the answer to this.