At The Cliff Edge

Peter Hain writes:

The secretary of state for work and pensions, Iain Duncan Smith, says in an interview with the Sunday Telegraph that he "would encourage" better-off pensioners to pay back their taxpayer-funded benefits voluntarily. This follows Nick Clegg calling for the means-testing of a range of benefits for pensioners, and Paul Burstow, the former Liberal Democrat minister for care services, suggesting the money saved should be channelled into elderly care reform.

There's clearly a rising call, either to abandon pensioners' winter fuel allowances, free TV licences and bus passes, or to means-test and tax them. Austerity, an ageing society and acute public spending pressures are cited in justification. This is simply mendacious, because the savings proposed would be a drop in the ocean compared with the overall welfare budget. The winter fuel allowance costs between £2bn and £3bn a year; so, unless the threshold is so low as to be worthless, there's not a chance of being able to fund a new elderly care programme.

Means-testing TV licences and bus passes would raise little more than £1.4bn a year, according to the Institute for Fiscal Studies. If, as the government has done with child benefit, benefits are removed from pensioners in the top tax bracket, the amount raised would be even less – about £250m, which is less than 1% of the total welfare budget (about £160bn) or 0.1% of total government spending. Frankly, the cost of all these pensioners' allowances is peanuts. To lower the threshold for means-testing would be administratively costly, time-consuming and inefficient because of the many varied combinations of assets, capital and earnings among pensioners.

It will also create real unfairness at the cliff edge for pensioners on modest or low incomes – especially those in need of more fuel or frequent travel because of illness, who could lose a key component of their independence in old age. Thousands of such people in my constituency alone have been liberated by free bus travel. While these benefits are trivial relative to the whole budget, the social and political cost of taking them away could be huge: what would this say about a society of soaring bankers' bonuses?

For lower earners these benefits are a few comforts guaranteed to them in old age, for middle to higher earners one of the few rewards received for consistent contributions to the welfare pot throughout their working lives. They are a symbol of senior citizenship and social cohesion.

Arguing that Sir Paul McCartney and other pensionable millionaires are receiving free bus passes at the expense of lower- or nil-rate pensioner taxpayers wilfully misses the argument for universal benefits. I doubt that Sir Paul uses his entitlement to a free bus pass – but, even if he did, he pays for it many, many times over in high taxes.

The worry is this: if middle Britain ceased to benefit from the welfare state through at least some universal benefits, why would they still finance the lion's share of it? The danger is a US-type system of poor law, from which President Obama has struggled to escape with his health reforms.

The attack on pensioners' allowances leaves a big question hovering over the future of the welfare state: is it for everyone, or just for the poor? In his epoque-defining report in 1942, William Beveridge advocated a universal and contribution-based welfare state in the laudable hope of cementing social solidarity. Now, 70 years later, that hope of cohesion is disintegrating as the Tory-Lib Dem government dismantles the very universalism upon which that solidarity relies.

Cutting or means-testing pensioners' allowances risks turning young against old and rich against poor while making negligible savings for the Treasury. All parties should be challenged to maintain them in their 2015 manifestos, as they did in 2010, and Labour should certainly stick by the policy.