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Not every pensioner needs a bus pass

The Independent, October 25th 2010

Pensioners are no more likely to be poor than younger people. If you look at their income after housing costs, 48 per cent are in the top half of income distribution

So we’re all in this together, are we? Well maybe, but only if we’re still young enough to work. Thanks to one intemperate outburst by David Cameron during a TV election debate, Britain’s pensioners can now look happily on while the rest of us see our incomes shrivel. How fair is that, exactly? If anything, the poor are subsidising the comfortably off. When George Osborne cut another £11bn from welfare payments last Wednesday, only £2.5bn of that came from higher-rate taxpayers. The rest is coming from people who are ill, disabled, unemployed or badly paid.

And while these people are going to suffer, the elderly will continue to get winter fuel allowance, free bus travel and – if they’re over 75 – free TV licences, however rich they are. Together, these three benefits cost the taxpayer about £3.7bn, more than twice the saving from cutting housing benefit – a reform which, we are told, is going to put families out on the street.

Now, of course there are still pensioners who are poor, and they deserve help. They already get it in the form of pension credit and the minimum income guarantee. But, in general, pensioners these days are no more likely to be poor than younger people. If you look at their income after housing costs, 48 per cent of them are now in the top half of the income distribution.

That’s a big change over the past few decades. In the old days, the best way to alleviate poverty was to throw money at OAPs and families with children, since these were the groups most likely to be poor. Back in 1979, 43 per cent of pensioners were in the bottom fifth of the income distribution; now it’s just 14 per cent. But our attitudes haven’t caught up with this shift. We still think of pensioners as needy.

In fact, their incomes have grown much faster than ours. In the past 10 years, they have risen by 38 per cent in real terms, compared with a 12 per cent increase in average earnings. And that’s on top of a 68 per cent growth between 1979 and 1997 – which was nearly twice as fast as earnings.

So why have the retired done so well? Far more of them now have occupational or personal pensions on top of their state benefit. Income from these pensions, even after inflation, is more than twice what it was in 1979. Some (younger) pensioners are still earning money on top of their other income. And more than 70 per cent have investment income. While all this extra money was coming in, taxpayers were being pretty generous too. Under Labour, there was a big transfer of cash from working people to the retired. Benefit income for pensioners went up by 22 per cent in real terms in the 10 years after 1998.

And though some of this money – like the pension credit and the minimum income guarantee – was rightly targeted on poorer old people, the rest was lavished with abandon on anyone who happened to be born in the right year, whether they were former British Gas fat cat Cedric Brown, on an occupational pension of £250,000 a year, or your old gran. Some of it was nakedly political: the winter fuel allowance, which goes to anyone over 60, was only brought in to quell fury over Gordon Brown’s measly 75p increase in the basic state pension. Even Dame Joan Bakewell, the last government’s “tsar” for older people, said last week that it should be means-tested.

She is right, for this generation of pensioners have had many advantages. When they were young, they could buy houses incredibly cheaply. It wasn’t till 1974 that the average home cost more than £10,000. Now more than two-thirds of households headed by pensioners own their homes outright – no mortgage, no rent to pay. Those who went to university did so for free. Then they often had secure jobs for life, with final-salary pension schemes. They are certainly better off in retirement than their parents; they may turn out to be better off than their children too.

Yet Gordon Brown and his fellow Labour MPs were schooled in the belief that poverty mainly affected children and pensioners. “Pensioner poverty” was a right-on phrase in the 1980s, almost as popular as “child poverty”. So whenever Brown announced a wheeze in one of his Budgets to “lift children out of poverty” or to reward pensioners, he was guaranteed a cheer from his own benches. Little did they realise that much of this money was going to people who no longer needed it.

Of course, “need” is a relative term. It’s very nice to have help with your heating costs, particularly if you stay at home all day rather than going out to work. As someone who works from home, I would be delighted to have winter fuel allowance to save me having to write in bed with the electric blanket on. But a payment that is welcome is different from one that is essential.

So what could Osborne have done last week to bind pensioners in with the rest of us? Well, he could have taxed these universal benefits, but that wouldn’t have raised much money. He could have restricted them to the over-75s who, on average, have lower incomes than younger retirees. That would have saved nearly £600m on bus passes and over £1bn on winter fuel allowance.

Neither of these measures would have been “intrusive”, as the Education Secretary, Michael Gove, claimed to me on The Politics Show yesterday. Pensioners who pay tax already fill in tax returns. And determining a pensioner’s age takes no intrusion.

The fairest move would have been to restrict these universal benefits to poorer pensioners on pension credit. Again, it wouldn’t be any more intrusive than it is now, since the state already collects information on their income. Giving only these elderly people bus passes, winter fuel allowance and free TV licences would save £1.4bn, according to the Institute for Fiscal Studies.

Why hasn’t it happened? Cast your mind back to the leaders’ TV debate in which Cameron said: “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.”

This pledge has been used as an excuse to set these universal benefits in stone. But read it again and you will see that it would not have precluded his taxing them, raising the age at which people were eligible for them or even – at a pinch – restricting them to poorer pensioners.

But there is, of course, another factor at work. Pensioners are the most avid supporters of the Conservative Party. At the last election, 44 per cent of them voted Tory, compared with just 30 per cent of the youngest age group. And they are much more likely to turn out and vote: 76 per cent of the over-65s voted in May, compared with just 44 per cent of the under-25s.

So Nick Clegg can break his election pledge on tuition fees to the young because they don’t vote much and they don’t vote Tory. But Cameron can’t break his election pledge to the old. We’re all in it together? No, it’s simple political arithmetic.

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