The Government’s u-turn last week on the winter fuel changes showed that they might not be as ready to take the difficult but necessary decisions as they claimed.
Last year the Prime Minister said failing to take tricky measures like means-testing winter fuel payments would be “putting a lick of paint over the damp”.
But at PMQs last week, he reached into the cupboard and got his paint brush out.
Whether the u-turn will actually help win back alienated voters remains to be seen. What’s worse, as Sam Coates has pointed out, it’s the precedent it sets. If enough political pressure is applied, Starmer will reverse course – difficult decisions and ‘fixing foundations’ be damned.
Starmer was right the first time.
The government absolutely does need to make tough decisions that won’t be popular in order to fix the public finances and turn the economy around. Pensions spending is at the top of the list.
The government spends £150bn a year on pensioners – almost three times the amount that goes on defense. The vast majority of this is of course the state pension, which is ratcheted up each year thanks to the triple lock. As people live longer and have fewer children, this is only going in one direction – and it’s one that we can’t afford.
The Adam Smith Institute predict that by 2035, the amount paid out to pensioners will exceed the amount brought in by National Insurance. Because although we like to think the system works by pensioners getting out what they paid in when they were working, it actually works by pensioners getting out what the current working population are putting in – and an increasing share of it. This is an unsustainable model that we need to find a route out of – but it won’t be pain-free.
It must begin with a serious conversation about the triple lock.
The state pension was originally introduced for people over 70, when the average life expectancy was 52. It helps ensure that those who have worked all of their lives are not left destitute when they can no longer work. Today, life expectancy is over 80, and the state pension age has dropped to 66. No one is suggesting raising the state pension age to over 100 now, but that there should be room for an honest conversation about how quickly the payments rise.
This is particularly pertinent when comparing the position of pensioners to the working age population. The ratcheting effect of the state pension rising by the highest of: inflation, average wage growth, or 2.5 per cent means that no matter what, pensioners get a pay rise, and often more than anyone else given our sclerotic economic growth. Thanks to the nightmare that is our planning system, pensioners are also far more likely to have property wealth and lower housing costs than working-age people. And as our population ages the burden grows while the tax base supporting that burden shrinks.
But if it’s such a problem, why hasn’t anything been done about it?
The straightforward answer is politics, of the kind that led Starmer to his u-turn. Pensioners can, in a way, act like a very effective interest group. Most common policy debates do not impact them directly; they largely don’t have to worry about what is happening to personal or business taxes, or childcare costs, or housing – save for the impact on their loved ones and the wider economy. But the state pension has a huge impact on them directly, and they don’t have to pick up the tab. You can see why they might be motivated to vote for whoever will offer the biggest free pay-rise. And vote, they do.
This isn’t a criticism of pensioners, but just an application of public choice theory that has been on full display recently. A Government elected with a huge majority on a platform of change, that has done its best to make a virtue of taking tough but necessary decisions, has been forced to reverse a relatively small cut. Robert Colvile has labelled this the UK’s ‘Snorgoth problem’.
To solve it, we need politicians who are willing to not just take the difficult decisions, but proactively make the case for them. Unfortunately, all parties continue to disappoint here. Many of the same noises are being made about telling the truth and taking tough decisions – but none have shown any appetite to actually stand up for those decisions yet.
Badenoch made some good points about means testing but was quick to clarify she wouldn’t be looking at the triple lock when attacked by both Labour and Reform. Farage recently declined to be drawn on the triple lock, but the aforementioned attack against Badenoch gives a good sense of Reform’s commitment to it. And the Government remains committed to it, with even former critic Torsten Bell going native in the Treasury.
The Liberal Democrats? The triple lock was their idea.
It is not the job of think tanks like mine to work out the political strategy, but there is a lesson in the winter-fuel fiasco for opposition parties (and Labour leadership contenders). If you say you’re going to take tough decisions, you have to mean it. Make the case early and convincingly, and provide an alternative approach. Saving the details of which painful cuts were to come until after the election probably felt politically prudent for Reeves and Starmer a year ago, but a year is a hell of a long time in politics.
