Well done, Ed Balls. He’s opened up space for a proper welfare debate. Lib Dems now need to claim that space.

Ed Balls has done us all a favour. His announcement last week that if he were Chancellor he would put a stop to winter fuel allowances for well-off pensioners means Labour has joined the Lib Dems in saying we need to focus the welfare budget where it’s needed most, not keep on re-distributing from the worse off to the better off in the name of universalism. It’s why I chose him as my 38th Liberal Hero.

And yesterday he was at it again, highlighting quite how much of the welfare budget the state pension represents — some £74 billion out of a total welfare budget of £159bn — when saying a future Labour government would include pensions within its new welfare cap. He was quick to add that he supports the ‘triple lock’ on pensions introduced by Steve Webb. He’d square the circle by allowing the pension age to increase to generate the savings that can then be used to fund future years’ pensions increases while at the same time lessening the cuts needed in other areas of the welfare budget.

It’s a sensible approach. Spending on the state pension in will increase by nearly 20% in real terms between 2010–11 and 2017–18. The impact of the current cuts is to redistribute on a large scale to pensioners from some of the most vulnerable young people who rely on benefits. That approach cannot be justified, especially with austerity likely to linger until at least 2020.

Nick Clegg long ago stuck his neck out to argue that pensioner benefits needed to be looked at. Ed Balls has now joined him. The Tories, until now too frit to risk the wrath of a key voter demographic, have hidden behind their panicky 2010 pledge. Expect them now to join the Lib Dems and Labour in approaching the welfare budget in a more rational way.

The Lib Dems deserve credit for having initially opened up this debate. Yet the party’s approach to welfare remains confusing (as I argued here in April).

We insisted on a 5.5% benefits rise in the Coalition’s second year, then voted for a real-terms cut the following year. Ministers defend Coalition policies like the ‘bedroom tax’ which they know would likely face defeat if put to the vote at party conference. We (rightly) point out that we have stopped the Tories imposing the wrong sort of cuts (for example, ending housing benefit to under-25s), but have gone along with illiberal cuts to legal aid.

In short, we are a long way from having a liberal approach to welfare enabling everyone to get on in life. There’s less than two years to the next election and the clock is ticking.

* 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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13 Comments

  • Peter Hayes 10th Jun '13 - 5:37pm

    If you have another pension your state pension is taken into account in calculating your tax code for the private pension. So what is the real, after tax, cost of the state pension.

  • Richard Shaw 10th Jun '13 - 6:05pm

    Joe,

    The trend for average life expectancy has been increasing by an hour a day since the mid-1800s and shows little sign of diminishing . When the State Pension was introduced someone might expect to last 5 or so years in retirement – now, people retiring today are likely to be as retired for as long a period as they were in work. To keep step, the pension age should increase by 1 year every 5 years – a predictable, fair and, above all, justifiable increase. I’m 27 now so, doing the maths, under such as a system I could expect to receive my state pension at ~77 – of course I would hope to keep working even after that point as work and regular activity has been demonstrated to keep one healthy in body and spirit in later life.

  • Why do politicians have such a bad attitude towards working age welfare?

  • Is it because they are, on average, an extremely privileged group, and therefore the furthest from ever needing to rely on the welfare system themselves?

  • Alex Harvey 10th Jun '13 - 9:26pm

    *fewer

  • @Richard Shaw: the key figure is not life expectancy at birth (which will increase as infant mortality decreases) but life expectancy at retirement age. To take an extreme case: if ten million people who might otherwise have died of diphtheria or whooping cough before age 5 live to age 60 and then die, the average life expectancy would go up significantly, but the number of people on pension would remain unchanged.

  • The catastrophic mistake almost all politicians and pundits make in the pensions debate is to assume that increased life expectancy means increased working life.

    It simply does not. We might live longer, and we might even be capable of working a bit longer than we currently do, but once you hit 70, your risk of neurological, and other disorders, which won’t kill you quickly but will prevent you working, and are incredibly expensive to manage, shoots up at an extraordinary rate with each increasing year.

    If the retirement age is set to 77, as was suggested above, then about 30-50% of people at that age will not be capable of work*.

    The problem is ageing is incurable, and we as a society are not seriously discussing how to pay for increasing costs of end of life care, where end of life care can last more than a decade., or, even whether or not extending life beyond a certain point can be justified.

    *Back of the envelope calculation adding together dementia rates + incurable cancer rates from NHS stats.

  • Most of the people who advocate raising the retirement age are in very well paid work, have good pension plans and don’t do anything that physical.
    Even with an extended life span age means things like arthritis, lower mobility, poorer short term memory, poorer eyesight and all kinds of other physical realities. My dad for instance lived a lot longer than his father, but this isn’t because he was healthier. It was because medical care improved.

    I don’t believe people should be working till they drop and that they deserve nice retirements at an age when they can enjoy it. It is very easy for politician, the most cushioned, pampered and powerful tax funded, people in the country to talk about “getting tough and being realistic” on issues that have no consequence to themselves. What is being called “realistic” is an attack on the average Joe by an elite and as a liberal IMO it sucks.

  • So people who propose raising it to 77 or whatever (so that you only on average only live for 5 years on retirement).

    What you are saying is that I should pay my national insurance for 61 years, so that I can claim a pension for 5.

    Yea, **** off.

    Ok, simplistic, but some balance is needed. you can’t be harking on about raising pension age again and again, but still taking lot’s of tax money of me, especially for those who have no money to spare for their own private pensions after tax, so they have no choice but to rely on the state pension.

  • Rather than raising the pension age, how about increasing the tax rate on larger pensions? Current pensioners mainly received tax relief on their contributions when income tax rates were much higher than now (basic rate as high as 33%) so it seems reasonable to tax the resulting income at more than 20%. This seems even more reasonable when you consider that the effective tax rate on wages above £10,000 p.a. is roughly 40% when you include NICs (including the so-called Employer’s Contribution, which is also a tax on work).

  • *Rather than raising the pension age, how about increasing the tax rate on larger pensions? *

    Because we want to encourage savings, not make people think “sod it”.

  • Pensions are not welfare. They are deferred pay, unless the pensioner has been unable to work.

    I concur, from personal experience, with the comments about older people having health problems that would exclude them from many or most jobs. Writing from memory, that concerns about half of men aged 63.

    However, viewed from Europe, it’s the debate in the UK that has gone sick. It’s based on more than one false premiss and on the absence of constitutional rights. It is kept going by a hate-mongering press that would not be allowed in many other places.

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