by Stephen Tall on November 22, 2012
Welcome to the 22nd in our series, Liberal Hero of the Week, chosen by Stephen Tall, Co-Editor of Liberal Democrat Voice, and Research Associate at CentreForum. ’Liberal Heroes’ showcases those who promote the four liberal tenets identified in The Orange Book — economic, personal, political and social liberalism — highlighting individuals regardless of party affiliation and from beyond Westminster. If they stick up for liberalism then they’re in contention.
Conservative MP for Kingswood
Reason: For recognising the unfairness that even the richest pensioners receive tax-free universal benefits.
“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.” David Cameron’s defensive outburst in the 2010 televised general election debates has boxed the Prime Minister into a corner. While preaching ‘we’re all in it together’ austerity, the Tory leader finds himself in the awkward position of defending the fact that 988,000 millionaire pensioners receive a tax-free winter fuel allowance.
So credit to Tory MP Chris Skidmore, a member of the Tory party’s 39-strong Free Enterprise Group, for sticking his head above the parapet to call out this anomaly for what it is: a scandalous misuse of scarce taxpayers’ money. In a new publication, A New Beveridge: 70 years on – refounding the 21st century welfare state, he argues:
Money will need to be more effectively targeted to those in need, rather than the current situation where millionaires can collect the winter fuel allowance. Just as the government has removed child benefit from the wealthiest households earning over £50-60,000, so we should do the same with universal pensioner benefits, meaning that the richest pensioners with separate incomes over £50,000 should no longer receive winter fuel allowance, a free bus pass and free TV licenses.
Chris Skidmore is right in principle. But there is a reform which would be simple, practical, fair — and would even allow David Cameron to say, legitimately, that he had upheld his election pledge. It would also avoid the bureaucratic expense that it is often feared will accompany means-testing of benefits. It was proposed this week in CentreForum’s alternative Autumn Statement:
Pensioners have benefited from an array of universal benefits in recent years. This includes free bus passes at 61, winter fuel payments at 61 (increased for over 80s), and free colour TV licences at 75. The total cost of these non-means tested benefits in 2011–12 was around £3.8 billion. In common with other universal benefits, this includes a level of leakage to wealthier pensioner households that is unacceptable in current economic circumstances.
The most effective and equitable way of reducing these disproportionate benefits would be to treat their cash value as income, and tax this income at the appropriate marginal rate. Even if that were not possible for TV licences and bus passes (especially given the varying benefit conferred by the latter), £230 million a year would be raised by taxing winter fuel payments. Those with incomes below the personal allowance – which is £10,500 for over 65s and slightly higher for over 75s – would be entirely unaffected.
Taxing these benefits is likely to garner broad based support. Even Ros Altmann of Saga, a staunch advocate of universality, has said she does “not understand why winter fuel payments and some other benefits are tax free. Revenue could be raised by making them taxable”.
The fuel payments would continue to help out those low-income pensioners for which the benefit was always intended, while those with higher incomes would pay tax on it according to their means. David Cameron would have saved face and the Coalition could drop some of its ill-considered benefits cuts, such as its proposals to cut council tax benefit.