Iain Duncan Smith wants wealthier pensioners to pay back their winter fuel allowances and other benefits. He's attacking the wrong fiscal targets
Winter is finally over – one of the longest and coldest in memory – so, quick as a flash, the work and pensions secretary has weighed in again to take another pop at winter fuel payments.
Having accepted that the prime minister will not change his position on the payments during this parliament, Iain Duncan Smith has instead called on 'wealthy pensioners' to return them to the state, once more describing the payments as an ‘anomaly’. He has neglected to define who counts as a wealthy pensioner and how people can return them, but then, these are not the only details apparently absent from his mind. In fact, his whole argument is so contradictory, it’s worth taking a few moments to pull it apart.
First, if Iain Duncan Smith really wanted to spend £200 less each year on every pensioner in the land, he could just slow the annual uprating of the state pension: few apart from the Institute for Fiscal Studies and Age UK would really notice. So, whatever this is about, his repeated attacks on winter fuel payments are not about reducing public spending on older people.
Second, if he thinks his department should not be spending on so-called 'wealthy pensioners', why not take aim at the state pension and tell people to hand it back as well? In fact, if he is so troubled by 'wealthy pensioners' receiving benefit payments from the state, why did he sign-off the annual ‘triple-lock’ uprating of the state pension in the first place?
Third, why repeatedly attack winter fuel payments anyway, given strong evidence suggesting they are highly successful as a policy? We know that because of a ‘labelling effect’, around 41% of the value of winter fuel payments does get spent on fuel - thereby contradicting economic theory, which would predict the ‘label’ should make no difference to how the money is spent.
This evidence, and efforts to encourage older people to worry less about spending money on staying warm, matters a lot in the context of the 25,000 preventable excess winter deaths that occur each year (although this past winter is widely expected to see this number rise), and the £1.36bn estimated annual cost of cold-related illness to the NHS in England. Scrapping winter fuel payments would wipe around £800 million each year from pensioner spending on fuel, which in turn would inevitably lead to more people dying from the cold or burdening the NHS.
However, these problems are not just a result of income, or limited to the 'poor old'. Fear of putting the heating on even when you can afford it is just one aspect of older households’ spending habits that is not wholly rational, and even holdp true for elderly people in expensive homes. That is why the winter fuel Payment - effectively a portion of the state pension, relabelled and paid just at the start of winter – is so well designed.
In fact, it is arguably the most effective ‘nudge policy’ in operation in the UK, and ‘pound-for-pound’ represents far better value-for-money than the state pension, which older people continue to spend in all manner of ways of no use to policy. So, if you have the choice of cutting the state pension or cutting winter fuel payments – as Mr Duncan Smith does – it would always represent far better policymaking (and better politics) to trim the state pension, even if that just means reclassifying the winter fuel payment as part of the state pension for public accounting purposes.
So why is IDS so determined to knock winter fuel payments? Possibly he has been swayed by the idea that the payments are a 'Brown bung', propounded by those too ignorant, ageist or partisan to actually examine the effectiveness of the policy and the outcomes achieved.
Or, it could be a question of symbolism: IDS feels uncomfortable taking an axe to working-age unemployment and disability benefit spending while simultaneously creating a more generous state pension, so he makes lots of noise about winter fuel payments in order to be seen to be trying to share the pain evenly across the board.
If IDS really is so keen for 'wealthy pensioners' to play their part in fiscal consolidation and share the pain, he should be leading the calls for taxes on the unprecedented, unearned and wholly untaxed property wealth accumulated by retirees, that has received no attention from the political class in the context of the biggest fiscal retrenchment in decades. That is the real anomaly.
James Lloyd is director of the Strategic Society Centre. The Centre’s report, ‘Cold enough: excess winter deaths, winter fuel payments and the UK’s problem with the cold’, can be downloaded here
