The Office of Budget Responsibility estimates that the most recent 2% cut in National Insurance, in the run up to the General Election, will cost an average of £10.3billion per year over the next ten years. If one adds to that the previous 2% cut in National Insurance (a few months earlier) that would explain the £22billion short fall in public finances identified by the Government.
Presumably, the previous Government hoped to recover this “pre-election give away” by growth and, more particularly, the frozen tax free personal allowance which the Office of Budget Responsibility estimated would raise £35.7billion by 2028/29.
This being the case, it seems most unfair and discriminatory for older retired people, who have no earning potential or borrowing power and got no benefit from the cuts in National Insurance but are affected by the frozen tax free allowance, to be singled out as the only group of people to have a cut in their gross income. Losing the winter fuel allowance is a £200 or £300 cut in gross income.
Britain has one of the lowest state pensions in the developed world which sometimes people defend (the indefensible) by quoting the add ons such as the winter fuel allowance, free prescriptions and bus passes. Older retired people recently lost their free TV licence and now their winter fuel allowance.
Not only will this add to the hardship of older people, at the very time gas prices are set to increase (not of necessity but in search of profit born of greed) but given the correlation between income and demand upon the health services, will increase the winter pressures on the NHS at the very time the Government is committed to reducing waiting times.
That 29% of children are being brought up in poverty – 2/3rds of who have a parent in work – and that many older people are suffering from malnutrition or dying from cold in the winter is an absolute disgrace.
Widening income inequality and increasing poverty are the great social evils of our time, Unless Government does something to address pay differentials, chasing inward investment and pursuing trickle down economics in search of growth will create millionaires and turn millionaires into billionaires whilst creating low paid jobs – thus widening income inequality.
* Chris Perry is a former Director of Social Services for South Glamorgan County Council, a former Director of Age Concern Hampshire, a former Non-Executive Director of the Winchester and Eastleigh Healthcare NHS Trust and a former presenter of an award-winning public affairs programme on Express FM.
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SOME pensioners, those who have only the state old age pension and others with low incomes will suffer as a result of this cut. My wife and I will lose WFA but if I’m honest it won’t be a problem because we both have pensions from our former jobs.
I think we should attack this differently.
If the WFA was simply added to the pension and then subject to tax along with all other income above the basic tax allowance, then poor pensioners would get all the benefit and more wealthy pensioners would pay tax on it that could go up depending on their overall income. That wouldn’t raise as much money but it would be a darn sight fairer.
As a party we should be focussing on the very low level of UK state pensions compared to almost anywhere else in Europe and looking for a way to greatly increase it. If we paid a decent basic pension then we wouldn’t need to supplement it with WFA or indeed pension credit.
Chris – did you forget to mention that, as a result of the triple lock, the state pension has risen by about 20% over the last 2 years? During that period, average earnings for those in work appear to have increased by 13% (https://www.ons.gov.uk/generator?uri=/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/july2024/2199384e&format=xls). I think you’ll find the extra increase 7% for pensioners adds up over a year to far more than the £200/£300 winter fuel allowance, making your claim of an absolute cut in income dubious.
The claim “Britain has one of the lowest state pensions in the developed world” is also highly misleading, since the context is that the UK pension system involves a mixture of state, occupational and personal pensions, where other countries often rely more exclusively on a state system. This Parliamentary Briefing (https://commonslibrary.parliament.uk/research-briefings/sn00290/) gives a more detailed comparison and points out that if you take all sources of income into consideration, UK pensioner income is actually pretty typical of other developed countries.
The increase in the energy price cap in October (to £1717) follows two decreases, and will therefore still leave the capped price substantially lower than it was at the beginning of this year (£1928). Gas wholesale prices are set by the international market, based on supply and demand. It’s not – as you allege – profit born of greed.
“If the WFA was simply added to the pension and then subject to tax along with all other income above the basic tax allowance, then poor pensioners would get all the benefit and more wealthy pensioners would pay tax on it that could go up depending on their overall income. That wouldn’t raise as much money but it would be a darn sight fairer.”
Exactly – as another OAP with a company related pension this seems the fairest and simplest way of dealing with this.
@Simon…
Pensioners on pension credit £218
Pensioners whose sole income is the state pension £221 …One gets the WFA, the other doesn’t for the sake of £3…That’s deeply unfair …They quite rightly must be wondering why on earth did I clock up all those NI credits for – might as well have sat on my backside …
Like Mick Taylor I have a work pension which, in addition to my OAP, keeps me very comfortable and I need the winter fuel allowance like a hole in the head. The aim should be to increase the allowance but concentrate it on those who really needed. To avoid the indignity and complications of means testing, simply give it only to those pensions whose incomes don’t reach the tax threshold, and don’t give it to the majority of us whose incomes do reach it.
The strongest argument for altering the WFA entitlement rules is that wealthy pensioners don’t need it. I’ve seen the the names of Richard Branson and Alan Sugar mentioned as examples.
However, let’s be clear about this. It’s not really about them. It’s about anyone with an income of more than ~ £220 per week. This payment could be totally reclaimed via the tax system for anyone earning more than, say £500 per week, in the same way that child benefit is clawed back from wealthy parents using the “Child Benefit High Income Charge”.
So we could have a similar “WFA High Income Charge.”
That is if the object of Rachel Reeves’ exercise was to avoid paying out to those who didn’t need it.
Clearly it isn’t.
Simon R @
The triple lock was introduced by the LibDem / Conservative coalition government to reverse thirty years of erosion since the earnings link was removed and has still not got back to its pre1980 value. Many of today’s older retired people were forced into retirement before the abolition of the default retirement age by the LidDems in the coalition government in 2012 and do not qualify for the new state pension because they retired before 2016. It is difficult to see how anyone can support singling out, and discriminating against, older retired people as the only group to get a cut in their gross income.
Mick Taylor and Peter Martin both suggest ways the income tax system can be used to tackle unfairness of the winter fuel allowance system. I agree that not all pensioners need it but surely this government should postpone such a decision until it has worked out how to improve the financial system for all pensioners covering pensions, benefits, housing costs, social care and so on.
Another factor as Chris Perry points out is the regulation of gas prices. People like Richard Winstone are revealing how totally inadequate Ofgem is; it takes far too much account of the profits of big energy suppliers and not enough account of consumers including small businesses who then pass on their energy costs to us all.
Of course if we did treat it as taxable income as suggested above, those pensioners, like me, paying standard rate income tax would still keep 80% of it and those on higher rate income tax 60%. Even those in the £100,000-£125,400 income band where the effective income tax rate is 60p in the £ would still keep 40% of it. Are we really suggesting that they need it?
@ Simon R The triple lock was introduced by the LibDem / Conservative coalition government to reverse 30 years of erosion since the earnings link was removed and the state pension has yet to reach its pre 1980 value. Many older retired people who retired before the Lib Dem / Conservative Coalition Government abolished the “default retirement” in 2012 were forced into retirement and condemned to spending the rest of their lives in poverty. And if they retired before 2016 are not entitled to the new State Pension.
@Laurence Cox re10th Sep ’24 – 12:25pm
There are some OAPs with income over the threshold for paying income tax who might need some of the WFA – because they have extra living expenses which are not covered by any benefit entitlements. An obvious one is someone with mobility impairment who can just about walk a little, maybe with difficulty and are not entitled to any benefits. The BBC showed a case of someone in this situation who spent most of her time sitting in a chair, getting no warmth from exercise and hence needing extra heating.
I don’t suppose there is a perfect solution to this WFA conundrum, but overcomplicating the system with special cases costs and should be avoided.
Laurence,
I think pensioners with income in the £100,000-£125,400 income band where the effective income tax rate is 60p in the £ will be few and far between.
The arguments against means testing is that it inevitably excludes those at the margins (often very low Margins). The genius of the Beveridge proposals was largely universal benefits and the ultimate aim was the elimination of the hated means test alltogether Why has the UK’s social security system become so means-tested?
It is beyond me why Labour has committed to not reversing the national insurance cuts implemented by the Conservatives in the run-up to the election instead of allowing interest rates to remain at elevated levels. The Conservatives were not shy about reducing the 50% tax rate to 45% after the 2010 election.
As noted in the article, a quick fix for the public finance holes cited by labour would be to reverse the national insurance cuts. Applying national insurance to unearned income as well as earned income woud likely close further gaps without reducing Household spending and tax receipts thereon.
A longer-term fix would be to integrate the tax and benefit system by replacing tax and NI allowances with a uniform tax credit/ UBI +disability benefit and replace housing benefit with a tax credit paid to tenants and credited against a Land Value Tax for owner-occupiers.
Without a radical redistribution of this nature to reduce inequality across the board, we will keep running up against these kind of means testing and cliffedge issues where it is better to not receive increased income and lose benefits. Ultimately (within this parliament), we may well see the flat rate state pension itself means-tested rather than the universal basic income for those past state pension age that it currently represents.
The thread is leadingtowards a reassessment of the overall taxation system which has become too complicated as a result of the necessity of political parties to ‘encourage’ its votare base to turnout and squeeze the other tribe. I recall a late night discussion amongst economists (perhaps on Newsnight) in the early 2000s where it was proposed to divide the national budget by the income earned by the workforce. I cant remember the numbers so won’t use any here but in that discussion it came out that the national budget could be satisfied by a flat rate of 15% income tax (paye+NI combined) applied to all as a completely fair system. Everyone is then a contributor to the national need. Then you can add the complication of a minimum wage/salary threchold and maybe the tax rate rises to 17%. A participant in the discussion said that he had put that to Gordon Brown who agreed but said that this would be the last act the Chancellor to introduce this system – because of politics demands introducing differences and being tribal. However…..
Behind all the white noise there are a couple of salient points.
The % growth in state pension has conspicuously exceeded that of public sector incomes and all other state benefits for 15 years.
The gap between the incomes of working people and pensioners has never been narrower. This means that todays workers are being considerably more generous to their parents than current pensioners were to their own parents when they were working. Something worth reflecting on.
Currently, public spending in the UK is in excess of £1.2 trillion i.e. circa 45/46% of total national income. Receipts from taxes and other sources are around £1.1 trillion or 40% of natioal income Tax statistics: an overview Income tax and NI raised amount to about 17% of GDP, so a flat tax of 17% would theoretically raise a similar amount but would be highly regressive. The flat rate tax can only effectively be applied to income over a certain limit – say the equivalent of mimimum wage-and may need to be around 30% of income above this level. The benefit of replacing tax and NI with a flat rate is that it effectively applies both income tax and NI to all income. This 2005 report discusss the implications a flat tax for the UK? the implications of simplification
Whatever the flat rate ends up at, it will be lower than the current base rate and thus fair. The use of terms such and progressive, and regressive illustrates the political tribal challenges/choices. The country needs £1.2t to operate and everyone making their relatively small percentage contribution makes everyone an equal stakeholder. Equality under the law and under the taxation system is a good principle to aim for.
@ Ellyott,
“Whatever the flat rate ends up at, it will be lower than the current base rate and thus fair”
I doubt we’ll ever agree on what may or may not be “fair.” There’s the question of unearned and earned income to consider. Should unearned income have a higher tax rate than income which is earned -perhaps the hard way?
I’d say yes. But maybe you wouldn’t.
I try to avoid using the word “fair”. I can still remember my mother’s reply whenever, as child, I complained to her that something or other wasn’t fair. “Life isn’t fair.” She’d say “The sooner you learn that the better!”
A few millionaires have been quoted as receiving the winter fuel allowance, such as Richard Branson, who pays no UK income tax, and Alan Sugar, who was forced to, when his claim of being a non-UK resident failed. If the reported bill of £186m tax paid by Alan sugar is true (although he apparently did try to avoid it) he will have paid the winter fuel allowance for quite a few pensioners, maybe including Richard Branson’s. Clearly the present system is madness. Paying a fuel allowance to pensioners on holiday in the sun, while others are freezing at home, should be replaced by a new system, where those who need help get it and where those who don’t, don’t.
@John Barrett
“Paying a fuel allowance to pensioners on holiday in the sun, while others are freezing at home, should be replaced by a new system, where those who need help get it and where those who don’t, don’t.”
What will be the cost of implementing such a system?
The Winter Fuel Allowance was introduced by Gordon Brown when he was Chancellor to Tony Blair in 1997. It has been part of older retired people’s income for 27 years. Therefore, however one looks at it stopping the winter fuel allowance is a discriminatory cut in older retired people’s gross income. No other group of people have had a cut in gross income.
That 29% of children are being brought up in poverty, 2/3rds of whom have a parent in work, and many older retired people are suffering from malnutrition or dying from cold during the winter is an absolute disgrace. Widening income inequality and increasing poverty are the great social evils of our time. Stopping the winter fuel allowance is a move in the wrong direction and will increase the winter pressures on the NHS at the very time the Government is committed to cutting waiting lists. If Government wishes to do anything about the winter fuel allowance it should increase it and add it to the state pension so it becomes taxable. And concentrate on looking at ways of reducing income inequality and pay differentials..
Might discussion of the removal of the Winter Fuel Allowance be avoidably limited if it does not include data, actual and projected, on deaths and hospital admissions connected with hypothermia?
Ditto its political and submerged « theatrical » messages and the possible influences of party donors?
Nonconformistradical – It’s not just about the cost, it’s about the value and effectiveness of the system. At present it is wasteful (paying it to those who are abroad and in the sun) and not effective, (not giving anything to the nearly one million who are entitled to, but not claiming benefits) It should not take long to work out a better method of supporting those who need help, while not wasting money on those who don’t. I will leave the exact costing details to others, but clearly it could cost less than the present system does.
Might it be generally helpful to discuss [political] questions in, at least, some of their contexts, including the contexts of alternatives?
Might the attached article may provide an example relevant to the abolition of the Winter Fuel Allowance?
https://www.taxresearch.org.uk/Blog/2024/09/11/labour-should-be-picking-on-tax-cheats/
@John Barrett
“It’s not just about the cost, it’s about the value and effectiveness of the system.”
Indeed – believe it or not I do actually realised that!!!
But the cost of including all the relevant information for all the people affected might be considerable , It isn’t helpful if the relevant government departments don’t necessarily communicate with each other about an individual’s financial circumstances. And I get the impression that they don’t necessarily communicate with each other very well. Which introduces the possibility of more mistakes – and then the cost of fixing those – assumng they are spotted.
Ellyott,
Horizontal equity in taxation means treating individuals with the same income equally, so they pay an equal amount of tax. Vertical equity, on the other hand, is based on income, with wealthier people paying a higher proportion of income in taxes.
The report linked above a flat tax for the UK? the implications of simplification illustrates how this is achived with flat tax at tables 1.1 and 1.2 with someone on £15k paying 6.6% of income in tax and someone on £100k paying 18% on income. With a two rate system the £100k earner would pay 28% of income.
VAT is a flat rate tax with rents/mortgages and food exempt of zero-rated and energy discounted to a 5% rate. So too are excise duties on tobacco, alcohol and petrol flat rate taxes.
I think there are two key points to bear in mind with taxation. Taxation of income is designed to shift resources from consumption to the provision of public services. As a consequence, income taxes need to be broad based across income ranges and increase proportionally with income levels. A flat rate income/NI tax with a generous enough personal allowance can achieve this outcome (cont).
(Cont) Wealth taxes do not target consumption. They target the accumulation of savings by the wealthiest. They are designed to prevent the accumulation of assets including investment housing in the hands of a small proportion of the population.
With home ownership rates rapidly declining many more of the current generation may be renting in retirement and reliant on state pensions, housing benefits and energy support like winter allowances to maintain them in old age. That is not a good direction of travel. The answer to this problem lies with Land Value Taxation. Only 5% of land in England and Wales is occupied by housing and some of the most valuable residential proprties are held via offshore entities Nearly 100,000 properties in England and Wales owned by foreign entities. Land ownership generally is concentrated in a few hands.
“Half of England is owned by less than 1% of its population. This level of inequality is nothing less than obscene. We need radical solutions to spread the wealth that comes with land more evenly – starting with a Land Value Tax” – David Lammy
@Mick Taylor
Completely agree about making WFA as part of a taxable income and then increasing the threshold sp the poorest pensioners are not bear the brunt of it. Honestly, I’ve been advocating for a long time we should be making all benefits to form part of taxable income or some kind of negative income tax when in receipt of benefits then make suitable adjustments so the very poorest are not suffering. This would simplify the system and make it more fairer and transparent.
Laurence Cox – “Even those in the £100,000-£125,400 income band where the effective income tax rate is 60p in the £ would still keep 40% of it. Are we really suggesting that they need it?”
No, but treating it as a universal taxable benefit is very easy and simple. It also gives politicians one less thing to tinker with. But perhaps a better use of the WFA is to combine it with the various energy saving levies already on our energy bills and embark on a massive programme of change!
My energy bill is circa £260pcm from one of the big 5, however, if I switched to Tomato.Energy I can turn that seasonally variable bill into a fixed £80pcm. Looking at their business model you see how they are achieving this, by creating an alternative energy market, which largely doesn’t include all the tiers of profit taking the big 5 enjoy. I suggest we should be looking at ways of getting the poorest out of the exploitative energy market, rather than fueling the status quo…
@ Joe,
“Wealth taxes do not target consumption. They target the accumulation of savings by the wealthiest. They are designed to prevent the accumulation of assets including investment housing in the hands of a small proportion of the population.”
This is true. The same can be said for a Land Value Tax which is often referred to as a “single tax”. I don’t remember you ever explaining the historical thinking by Henry George on this. However, it can’t be that because we do need taxes, as I think you’re agreeing, to target excessive consumption too and so regulate aggregate demand.
This is not to say that we shouldn’t have taxes on wealth and land providing we are clear what we want to achieve.
@ Laurence Cox,
“Even those in the £100,000-£125,400 income band where the effective income tax rate is 60p in the £ would still keep 40% of it. Are we really suggesting that they need it?”
Of course they don’t need it. However, we can let them keep it and then reclaim it with “Higher income Charge” in the same way Child Benefit is reclaimed from better off parents.
Peter Martin,
when Henry George was writing there was no US federal income tax. The Federal government financed its spending largerly from customs and excise duties on external trade. States and localities collected poll taxes on voters and property taxes on land and commercial buildings. He observed that in Cities like New York there was great poverty amidst great wealth and that tariffs ultimately were borne by consumers in the cost of goods. Like the classical economists he had read he argued for free trade and land Value Taxation,
A similar argument is being made in the current US presidential election. Trump is arguing for widespread tariffs arguing that China will pay. Harris is making the pount that it is US consumers that will bear the cost of import tariffs. On the Democrat side, Harris plans to introduce a help to buy scheme for first time homeowners. She must have not seen what happended to house prices when the UK did this.
There is a debate in Georgist circles around a single tax versus LVT as part of a broad range of taxes. I come down on the latter side and think a combined income and NI flat rate tax with a personal allowance equivalent to the minimum wage (or equivalnt tax credit) coupled with a proportional property tax could work quite well.
Warren Mosler (founder of MMT) seems to favour a single tax on property supplemented by a sales tax on luxury goods.
After dining with a group of Keynesian economists in Washington, in 1944, Keynes commented: “I was the only non-Keynesian there.” I have a feeling that Henry George might say something similar today.
@James: The % growth in state pension has conspicuously exceeded that of public sector incomes…
The size of a percentage increase is meaningless unless you look at the base it is rising from.
The state pension is currently £221.20 a week.
The Minimum Wage works out at £423 for a 37-hour week.
So, if the state pension were to rise 10%, it would rise by £22 a week. The minimum wage would only need to rise by 5% for an extra £21.
The average salary for 22-29-year-olds is £583 per week, so only a 3.5% increase would achieve the same as the pensioners’ 10% rise. Etc.