Clegg threat to block any further welfare cuts unless Cameron agrees to tax wealthy pensioners’ benefits

It’s 18 months since Nick Clegg first publicly aired the idea that some universal benefits given to better-off pensioners should be means-tested — an idea that’s found favour with two-thirds of Lib Dem members.

There have always been three problems with the idea.

The first problem is that means-testing is bureaucratic and potentially expensive. However, there is an easy way around that: treat their cash value as income, and tax this income at the appropriate marginal rate, as proposed by CentreForum last year. Pensioners with annual incomes below the personal tax threshold would be wholly unaffected; those above it would pay only in proportion to their income.

The second problem is David Cameron’s personal promise at the last general election to protect such benefits:

cameron pensioner pledge 2010

It was a pledge he angrily re-asserted during the televised leaders’ debates in 2010:

“We will keep the free television licence, we will keep the pension credit, the winter fuel allowance and the free bus pass. Those letters you’ve been getting from Labour are pure and simple lies … They make me really very, very, angry.”

The Lib Dem leadership will argue that the proposal to tax such benefits isn’t be a breach of this promise. Here’s today’s Independent:

Liberal Democrat ministers say that taxing or means-testing the special benefits for older people would not breach David Cameron’s pledge at the 2010 general election to maintain their winter fuel allowance, free TV licences and bus passes. Taxing winter fuel payments and TV licences would save about £250m a year and affect 1.5 million old people, while restricting them to poor pensioners who qualify for the pension credit top-up would save £1.4bn a year. … One Lib Dem minister said: “Taxing or means-testing the pensioners’ benefits would not mean getting rid of them. So, David Cameron would not be breaking any promises.” Iain Duncan Smith, the Work and Pensions Secretary, is thought to be prepared to curb some pensioner perks but Downing Street has repeatedly said Mr Cameron is sticking to his previous pledge. It is not yet clear whether the Prime Minister is open to the formula being suggested by the Lib Dems.

The third problem is that pensioners are the most powerful group in the electorate: quite simply, they bother to vote in numbers that younger generations just don’t. It’s why the Coalition introduced the ‘triple-lock’ that’s increasing the state pension (accounting for almost half the total welfare bill) by nearly 20% in real terms between 2010–11 and 2017–18.

Ironically, it was this week that the Labour-leaning Fabian Society urged that better-off older people should pay tax at the same rate as younger people on similar incomes; yet only a year ago the Labour party was in uproar at just such a proposal, the so-called ‘granny tax’. It’s a brave party which will propose a policy easily seized on by opponents in that way again.

It is, apparently, easier to impose a benefits cap than it is to try and tax a millionaire’s fuel allowance.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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44 Comments

  • Didn’t Nick Clegg threaten to block further welfare cuts once before – only to end up backing them? Or have I imagined it?

  • Foregone Conclusion 25th Apr '13 - 8:50pm

    Oh, they’d have to break a pledge, would they? My, how awful. My heart bleeds for them. It isn’t like the Tories would ever insist that we break a publicised pledge to a significant bloc of our voters in the national interest, is it?

    Mwahahahaha…

  • This article suggests that Clegg has made a “new” threat to block further welfare cuts, yet no where in the article does it point us in the direction of where this has “supposedly” been said.

    Clegg should not be bartering with regards to any further welfare cuts anyway. If the man had any sense of fairness or compassion, If he was going to stick to the Liberal Democrats constitution which seeks to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty. He should be saying that under “No circumstances” will his party in government support any further to cuts to welfare which are causing real financial hardship for the most vulnerable people society and increasing child poverty.

  • Perhaps it is time that those pensioners who saw combat in WW2 had free care. There are pensioners who went to war , not expecting to live, have to pay for care , yet there are those who have lived on welfare all their life and never served this country . These pensioners paid NI and tax from before1945. Often those who experienced the highest level of casualties in the war are those who speak least about their experiences the least . Many pensioners have problems due to war injuries. Some pensions paid for war injuries have been removed.

  • Good article, but as matt says, the title oversells it. I can only hope the title is heading towards our 2015 manifesto: “We can’t promise no further welfare savings, but affluent pensioner benefits have to be first for savings, you can’t balance the books on the backs of the poor.” or similar, making it clear that we are serious if we are in a position to negotiate after the election.

  • There are roughly 12m elderly in the UK with approx 5.6m paying tax. The tax-free threshold is currently £10,500 for 65- to 74-year-olds and £10,660 for those aged 75 and over.

    Winter fuel payments, free prescriptions, bus passes and television licences are estimated to cost £5bn a year.

    As the majority of individual pensioners have income below the current personal allowance for over 65’s. probably around half would not pay tax on benefits. The numbers that would be subject to tax on winter fuel payments and TV licences are quoted in the article as 1.5m and the tax take at £250m.

    I would be more inclined to scrap these benefits and the over 65’s personal allowance altogether (retaining free prescriptions for over 75’s), replacing both with a single tax credit of £2100 per year to be paid in addition to the flat rate pension of circa £7,000 per year. All pensioners would have a minimum income of £9,100 per year. The minority with individual taxable income of £10.5k or more would pay tax at 20% (or higher rates where applicable) on income above that level. The majority of pensioners would be better off as the benefit savings are redistribured to the lower income group and their net incomes increase by roughly double the amount of benefit withdrawal. The minority that currently pay tax would lose free benefits but not incur any additional tax on their current incomes.

    Many seniors seem inclined to help out the less well off of their generation, if they can see that the benefits are being fairly redistributed and not just dumped into the blackhole of ever bigger banking bailouts and deficit reduction.

  • Fiona White 26th Apr '13 - 8:08am

    Of course it is nonsense to pay such things as winter fuel allowance to very wealthy people. The discussion should only be on where the cut off point comes. It has to leave people enough to live on while being able to heat their homes and have a healthy diet. It also need to ensure that their mental health is protected by not isolating them because they don’t have the money to go out socially.

  • Well said, Adrian!

  • We’ve been here before!

    There are two questions: firstly whether benefits should be taxable or not and the second the method by which someone qualifies for the benefit.

    It is so obvious that most benefits should be taxable as income, as this would be a much simpler and less bureaucratic system than the present means testing. It would also mean that people would be able to use calculators and work out for example the effect of getting promoted and receiving an extra £50 per week. Of the benefits listed in the article only the bus pass presents difficulties in agreeing a valuation.

    As for the qualification, it is obvious that the simpler this is the less the benefit will cost to administer. The two problems with this approach are: firstly governments have deliberately used means testing as a way of discouraging people from claiming, so we could expect the actual number of claims to increase and secondly people who don’t need the benefit can also receive it, but this can be handled within the taxation system by providing an upper income limit at which point benefits get taxed at 100%.

    But such simplicity isn’t in the interests of bureaucrats, so I doubt we’ll see it…

  • ” I do “pay tax at the same rate as younger people on similar incomes”.”

    Do you pay NI though? That’s another 11%

  • From the GOV.UK website,

    ” You could get between £100 and £300 tax-free to help pay your heating bills if you were born on or before 5 July 1951. This is known as a ‘Winter Fuel Payment’. Most payments are made automatically between November and December. You should get your money by Christmas. You should get a Winter Fuel Payment automatically if you get the State Pension or another social security benefit (not Housing Benefit, Council Tax Reduction or Child Benefit).”

    Do pensioners living abroad in warm countries automatically get this payment?

    Why?

  • “Freedom/bus passes are benefit not only for the over-60s, but also for the whole community, as, if they didn’t exist there would be more car journeys, either by the pensioners themselves or by others giving them lifts. This would lead to more more polution and more public expenditure on roadbuilding.”

    Couldn’t the same be said of free public transport for the whole population?

  • Peter Davies 26th Apr '13 - 2:06pm

    It is now almost impossible to pay for your fuel in the same season you use it. Fuel companies prefer to even your payments out across the year. Winter fuel allowance never related to your actual fuel bill anyway so there is absolutely no justification for separating it from the standard pension.

  • @Adrian – Well said.

    I hate it when we hear that the social security budget will not be touched again because it always means it will be !

  • “Freedom/bus passes are benefit not only for the over-60s, but also for the whole community, as, if they didn’t exist there would be more car journeys, either by the pensioners themselves or by others giving them lifts. This would lead to more more polution and more public expenditure on roadbuilding.”

    Sorry, but as someone who loves public transport, I am sad to say this is not the case. I did research into this for my previous work, and I am truly sorry to say that the bus companies were losing out because of the free bus-passes, and as such, they passed the difference on to their paying customers. This led to price hikes and even more cars on the road as became uneconomical for many to use the bus services.

  • @Ian Sanderson (RM3) & Chris

    I think both of you are right!
    Ian because I agree free bus passes for the retired do help to reduce car journeys by this age group and this is certainly something we would want to encourage particularly among the growing elderly population. Liberal Al is also right, that currently these bus passes are basically funded by the companies contracted to provide the public transport service, which is causing the problems Liberal Al refers to – which will probably get worse as the over-60’s population increases.

    Perhaps by attaching a taxable value to a bus pass, we introduce a means by which people can decide whether to take the bus pass or not, thereby reducing the number in use and also provide a means by which the bus operators could receive some recompense from government to help cover the provision and to provide a market for them to offer their own discount/loyalty card to the over-60’s.

    I believe there are similar problems with the rail operating companies accepting network wide railcards and ticketing, but the funding issues aren’t as pronounced as with the bus operators.

  • Anthony Turtle 27th Apr '13 - 9:41am

    OK, the article is targetting the cuts to the elderly, but the picture of the Conservative promise hides another important breached pledge:

    “Increase spending on the NHS every year, which is our number one priority. ”

    And now they are trying to cut NHS spending by cutting the NHS up and selling bits off!

    I am stuck now, I don’t trust Labour, I don’t trust Conservatives, I don’t trust UKIP because they seem intent on cutting the UK off from the rest of the world. Liberal Democrats have lost my trust because they have sat back and done nothing to stop the harm caused by the Benefits reforms. Who am I left with?

  • “Who am I left with?”

    You’re left not trusting politicians – a state much of the population has been in for some time.

  • Tony Faithfull-Wrigh 27th Apr '13 - 3:02pm

    As a LibDem Pensioner with only the basic income, I am finding life tough. To live I have to take 12 types of tablets a day? No way could I afford to pay for my medication. I use my Bus Pass because I can’t afford to have my car mended? I don’t have sky or any other package, and I don’t have a home phone. I have cut everything down to the bone, and still only just get by. I suspect I am one of Millions of similar pensioners. After years of working I believe we deserve a level of income that keeps us comfortable (after all we are the 7th richest nation on earth).
    Having said that, I am sure that the majority of pensioners would accept that those who are rich should not receive any benefits at all (including child benefit) All benefits were devised to help those who were at or below a certain income level. This should be implemented across the board. No ifs, no buts, full stop.

  • From my point of view, free bus pass waving, heating allowance benefitting pensioners, who have emptied the nation’s pension pots forvthemsleves, driven up house prices, carried on working past their ( early) retirements at a favourable tax rate and left the rest of us to pay for their care probably should be means tested for genuine need. Granny tax was the first step in a journey which sorely needs to be travelled.
    🙂

  • Whilst I know the LibDems are in favour of going on to the next available bashing and that their choice is that this shall be “wealthy” pensioners, I just wondered – very seriously – when any action was going to be planned for those who brought the global economies crashing down. I mean, I have read the Coalition Agreement and there is quite substantial commitment in it regarding bank regulation. What has actually happened? I mean, I do know – I just wondered if any LibDems know.

  • thank you for your simple answer jedibeeftrix. So, to clarify: having identified that the finance sector acted in a deliberately dangerous manner (which isn’t regarded as criminality unfortunately) they may continue to act in a deliberately dangerous manner for all time because to target that sector now or ever would be damaging to the country. So the people involved get to keep their riches and continue to grow their riches and have no opportunity to exhibit any shame whilst they have poor – and I mean poor – people pay the bill for for the damaged they caused? Am I right? That’s what you’re saying isn’t it? They get away with it and others end up in foodbanks and/or doing jobs for no wage. Jesus wept! (And I’m not a believer!).

  • I don’t think pensioners benefits should be cut, I just want them to pay tax at the same rates as everyone else, including National Insurance, and with the 10,000 income tax threshold increases.

    The basic pension is double the level of the jobseekers allowance that working age people have to live on if they are looking for work. The funds generated can make this fairer by increasing the support for working age people.

  • As usual these government ministers (IDS, in this case) are just making up “policy” on the back of envelopes. Pensioners, like myself (70), have worked all their lives without claiming benefits from the government or local councils. After Brown & Blair messed up this country I voted for Tories for the first time in 2010. Never again!. I pay over £2000 tax each year on my pension. I run a small car, use my bus pass, and receive the £200 fuel allowance. The rest of my taxes are spent on helping pensioners worse off than myself, educating grandchildren, and paying vast sums as salaries of incompetent MPs and ministers. It’s a wonder that these incompetents have not got Britain into a worse mess like Greece and Spain. Aha! The solution is that my civil servant daughter is running the country so well, and preventing the ghastly ministers from implementing their “policies”.

  • Is Clegg serious? He was talking about means testing “multi-millionaires”.

    Of course, if it was only multi-millionaires who lost their winter fuel payments, the Chancellor would only save peanuts!

    So is Clegg deliberately rattling a cardboard sabre, so as to go through the motions of differing from the Tories, while making it clear that he doesn’t really mean it?

  • Regarding the benefits for the elderly – free prescriptions, free public transport and winter fuel allowance, what no-one seems to have noticed is that these kick in at the age of 60. And what is the age of retirement? Many people are still in full, paid employment when they become eligible. People of 60 or more who are on income or disability benefits should certainly get the age-related allowances , but not those still earning a wage. And as for Ian Duncan Smith’s suggestion that the better-off should return their allowances, good luck with that!

  • Robert Hamilton 1st May '13 - 6:41am

    Well said, giselle97.
    Banks and other financial institutions have robbed and still do. Energy companies ramp up prices. Supermarket prices are design so that food gets wasted. Companies evade paying tax. The rich use tax havens. Accountants, who also can be auditors, specialise in tax avoidance for companies. A spell in jail would be a more socially desirable experience for accountants specialising in tax avoidance than the current system of secondment into the Treasury and HMRC.
    In the midst of this, I am asked by our leader to support lowering the income from the poor, the ill and now pensioners.
    While canvassing recently I found a note fixed to a door: “Dear politicians, we do not want to listen to your lies. Take your papers and jog off”. I don’t say Nick tells lies. He has said he is sorry and that is a good thing.

  • Eddie Sammon 1st May '13 - 11:58am

    Rob, you seem to be one of those who generally hate the rich? If this is true, then why do you?

    I would like to be rich one day and it genuinely hurts when I read comments such as yours. My deepest desire is to do the right thing which is why I am trying to build an ethical financial services business whilst maintaining political activism. It is extremely hard work, but if it works out I know I will be hated by many, and I don’t think that is fair.

    The hatred, the vilification, it slows people down and can prevent them from achieving their goal or feel guilty about enjoying their success. It is not fair. People should not morally judge someone without walking in their shoes.

  • Eddie Sammon 1st May '13 - 12:29pm

    You might think my reply is over the top but I have advised on tax avoidance so I am exactly the type of person you are saying might be suited to spending some time in prison.

    At the end of the day, all I can do is advise what the law says. I cannot bring a fair share into it and I do not think it is immoral to follow my advice.

  • Eddie,

    I don’t think your reply is over the top and if we start as a party villifying anyone who gets on in life we might as well pack our bags and get out of the politics business.

    I do thinkl Giselle97’s original point about the finance sector, or banking in particular, is an important one. Similar issues were being raised in the interwar years. Josiah Charles Stamp,was a director of the Bank of England and chairman of the London, Midland and Scottish Railway. A quote often attributed to him is:

    “Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take away from them the power to create money and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.” (Said to be from an informal talk at the University of Texas in the 1920s)

    The recent FSA report on RBS concluded that the bank was brought to its knees by “multiple poor decisions” and a £50 billion “gamble” on buying Dutch bank ABN Amro,

    Vince Cable has today called on Scottish prosecutors to reach a decision “as quickly as possible” about possible action against the directors of Royal Bank of Scotland at the time of the financial giant’s collapse. He said there was “considerable public concern” about the actions of the lender’s leadership, which left RBS needing a £45.5 billion taxpayer-funded rescue..

    Banking reform and regulation of the money creation process is among the most important economic issues of our times. We cannot afford to be too timid in addressing this critical area of the economy.

  • Eddie Sammon 1st May '13 - 10:45pm

    Thanks for your comment Joe. I used to work in the City and can tell you that bankers are nice people. If you think banking needs to change then you need to take it up with the regulator and the people in charge.

    People who think they are ethical and bankers, CEOs, tax advisers and tories are not need to understand that everyone is human. The same goes towards people who hate criminals and benefit claimants.

  • Eddie,
    “. If you think banking needs to change then you need to take it up with the regulator and the people in charge. ”

    I think that is precisely what we as a party should be doing. Adair Turner, former Chair of the FSA, was interviewed on BBC hardtalk tonight and is calling for much higher capital base requirements for the banking industry. I don’t see any real alternative to this approach. Leverage ratios of up tp 50 times base capital for loan books and trading portfolios pre-2008 were clearly unacceptably risky for depositors and ultimately taxpayers.

    The Basel III regulations still leave depositors/taxpayers far greater exposed relative to shareholders/subordinated debt than is prudent and acceptable. Banking is not a business like anyother. No-one had much of a problem with the old style merchant banking partnerships that put their own capital at risk in underwriting share issues or trading on the financial markets. Using depositors money for highly speculative purposes, as has been happening increasingly in the City since the deregulation of the seventies and eighties, is an entirely different matter

  • Eddie Sammon 2nd May '13 - 6:30am

    The problem with increasing capital ratios is that it puts up the cost of banking. I think customers should have the option of paying a fee for a super low risk account, like a traditional vault, but when push comes to shove they might just prefer for banking to be done the usual way.

    I still don’t understand how a bank creates money. If £100 is deposited in a bank, and they lend out £90, that then finds its way into another bank that lends out £81, then surely this is the same money going around and we are just talking about the velocity of money?

  • Paul In Twickenham 2nd May '13 - 8:15am

    @Eddie. You might find it interesting to read this analysis of the Northern Rock disaster that was written by a student at Princeton at the height of the crisis : http://www.princeton.edu/~hsshin/www/nr.pdf.

    The “leverage” graph at figure 9 is particularly enlightening, as is the description of how Northern Rock’s “Granite” vehicle used access to the international money markets to cover funding liabilities. When liquidity dried up, Northern Rock was inevitably destroyed.

    Anyone reading this will wonder how “Fred The Shred” got away with it for as long as he did.

  • Paul In Twickenham 2nd May '13 - 8:24am

    @Paul in Twickenham – oops, I described the author of the paper in the link above as “a student at Princeton”. He is actually Hughes-Rogers Professor of Economics at Princeton University… It *is* a particularly well-written critique 🙂

  • Eddie Sammon 2nd May '13 - 9:25pm

    Ha ha, I clicked on it this morning and thought “must be a bright student”. I’ve just saved it onto my computer, I will try to find time to read it!

  • ena anthony 18th May '13 - 5:32pm

    has any one heard of steve webb if so do not try to contact him ,i asked him about the social fund and all he did was repeat the questions i asked so it is thumbs down for this lib dem any eles contacted him ?

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