It’s time to abolish universal benefits for pensioners – but expect a backlash

I’d just arrived in the office when the telephone rang. The enraged caller let rip in a ten-minute diatribe before threatening to put something disgusting through my letter box. For similar reasons, a colleague once received a death threat. Had we waded into a controversial debate on culture and diversity? Immigration? Perhaps free speech and religious expression? No. We had questioned the wisdom of universal pensioner benefits, like the winter fuel allowance and ‘free’ bus passes.

Many believe politicians’ unwillingness to re-examine these policies is a consequence of pensioners’ propensity to vote. According to the left-leaning IPPR think-tank, the 2010 election saw three quarters of over 60s vote, compared to less than half of 18-24 year olds. When George Osborne says he wants to find another £12 billion in spending cuts from the welfare budget, it's unsurprising that it's changes to housing benefit for young people, rather than winter fuel allowances and bus passes, he has in mind.

But there could be a simpler explanation: politicians may simply be scared of the backlash they would face. Last week, I was on the Alan Titchmarsh Show to take part in the ‘ding-dong’ debate on pensioners having free bus travel. It was to be a light-hearted affair, but I knew it was a lost cause when I heard a round of booing for my viewpoint when the warm-up comedian explained the debate to the audience. While good-natured, the anger of the pensioner dominated audience was obvious.

Yet the case for re-examining these universal benefits should be obvious. The UK is still borrowing around £100 billion a year, and the chancellor wants to make further savings from welfare. With an ageing population, these non means-tested benefits will only get more expensive. You don’t have to be a ‘generational jihadist’ to question whether these policies are fair. This is especially true given that the coalition has instituted generous triple-lock pension reforms, a variation of the Dilnot reforms on social care, and has protected NHS spending – much of which is spent on older people.

On pure tax and benefit terms, NIESR’s Jonathan Portes has shown that pensioner households have, on average, lost less from the fiscal consolidation measures than working age households with children (but not those without). Yet we should judge spending on its merits, not just an equal sharing of the burden. When many older people are healthier, working for longer and are often wealthier that at any other time in their lives, does it make sense to prioritise free bus travel, for example? Some say it helps the most vulnerable – but it only really benefits those able to travel unaided or who have decent existing bus services nearby.

It would be better, surely, to abolish these kinds of benefits (which treat elderly people like children) and – alongside other reforms – to use the saved revenue to cut income taxes on working, allowing people to save for their own old age, and spend money on whatever form of transport they see fit.

Unfortunately, benefits create interest groups that get infinitely more angry about their loss than those who would gain from broader tax cuts. In behavioural economics, it’s called the ‘endowment effect’. People value something more highly when they have it than before they did. And as I learnt last week, hell hath no fury like a pensioner whose bus pass is being discussed.

 

This article was originally published by City AM.

As one of the privileged pensioners, I see your point entirely. I worry about well-off pensioners who resent a more equable distribution of benefits to young families with children (our grandchildren, in most cases). I fear that this could ultimately grow into inter-generational resentment. Yes, I take my winter allowance and free bus pass but only the basis that it enables me to distribute more back to my poor offspring. Even though I could live a fairly affluent life, I prefer to indirectly share my discretionary income with my children on a needs basis. How right you are about the ‘endowment effect’. When I was working and planning for my retirement I never expected anything like winter allowance and a free bus pass. However, now that we have got them many see them as a right. I think our only rights are what the government promised to give us (in the way of pensions, health services, etc) when we were planning for our retirement, not what they "magnanimously" gave us subsequently. I appreciate that a lot of pensioners are not as well off as myself but for some this may be due to not providing sufficiently for themselves through the myriad of life-choices they have made, eg insufficiently-hard pursuit of a well-paid career. However, I feel that the younger generation have, in many cases, greater needs and everybody must share the pain. On the other hand, there is too much of a dependency culture among some of the young that must be stifled. It's a difficult balancing act but we can start by quelling the belief that benefits are a "right" and I think the older generation could set a good example here.
The heating allowance and TV licence money could easily be recovered by changing the tax bands and there would be little objection. The free bus pass and reduced train travel are different. Those who campaign for their abolition disingenuously state the price the pensioners would have to pay for the same journeys as the cost to the taxpayer. This is not correct. If the benefits were abolished, pensioners would make far fewer paid journeys that they took free. Many pensioners are bored and lonely. They take bus trips for something to do, to meet friends and it gets them active and out of the house. They wouldn't make these trips if they had to pay for them and the phantom benefit payments would not be recovered. These trips aren't a problem for the rest of us. Pensioners have to wait until after 9.30am and most of the services would be running anyway. I think getting pensioners active and out of their houses is a greater benefit than the cost, if correctly calculated, of free and reduced travel.
Jonathan - if pensioners did not get bus passes, they would be offered deals by the bus companies to travel cheaply. Some local authorities may well decide to give passes too as they used to but these decisions are better taken locally, I think.
Jonathan Bagley - What if pensioners would prefer to have the money that free bus passes cost in order to do something different? For example, if they are in a wheelchair and can't use busses, perhaps they'd rather have more money (and perhaps choose to spend it on an adapted car or on staying at home and paying for a Sky TV package)? Why do you think that pensioners aren't capable of making their own choices?
I maintain that the benefit is huge for the cost. Little money would be saved scrapping it. Most of the buses would still run but emptier. Here is a concrete example. I'm retired. Three days a week I make bus trips of eight miles each way. The free pass is scrapped. I no longer make these trips, or maybe one a fortnight. Taxpayer gain, one bus fare a fortnight. Pensioner loss, five days a fortnight out of the house, talking to people, taking part in activities and getting exercise. Suppose the bus fare is £4. The taxpayer gains £2 a week. The pensioner lose 5 days out a fortnight. Those lobbying for abolition make a different calculation. They would say that the cost to the taxpayer is £12 a week, implying that scrapping the benefit would save the taxpayer £12 a week.
Jonathan Bagley - There is a fallacy in your argument. You don't know whether the bus would still run without the government payments to the bus company to pay for "free fares". It may be that the government subsidy is all that keeps the buses running as frequently as they do. Neither do you know what the bus company would charge pensioners were there no "free fares", assuming that the services did still continue to run. You seem to think that the current arrangement provides us with a "free lunch" - it doesn't.
Tax and benefits are two sides of the same coin. So for well of pensioners, benefits like the free bus pass are a tax credit. The point being, if you want to increase the tax burden on pensioners, it's cheaper from an admin point of view to do it by increasing taxes. Means testing benefits on the other hand is ten times more costly. So the over all tax burden goes up. It's not how much Government spends that is important, at the day of the day, it's the net tax burden. Universal Benefits cost the tax payer less. Means testing more. I don't want to pay more, but apparently Ryan Bourne does. Very odd.
I am a pensioner receiving various universal benefits, and I completely agree that I do not need these benefits. Ryan Bourne joins the crowd saying that well-off pensioners should not receive winter fuel allowances, etc., but like the rest of the objectors, he does not say how he would do it. The benefits could be made taxable. Works for me as I already file an annual tax return, but then every other pensioner in receipt of benefits would have to file a tax return as well. And only 40% (or 45%) of the benefit would be clawed back. Pensioners above a certain income level could be required to give back/refuse/not apply for benefits. How would that be checked? Would that be the same cliff-edge as was originally proposed for child allowances, or would it be tapered, as now with child allowances? Back to needing tax returns. People who think that ending free bus passes for rich pensioners need to take on board one simple fact. You can have universal benefits, or you can have means tested benefits, What you cannot have, without a lot of administrative hassle, is not-quite-universal benefits.

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