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

Ryan Bourne
Ryan Bourne is head of public policy at the Institute of Economic Affairs.

I’D JUST arrived in the office when the telephone rang. The enraged caller let rip in a 10 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 £12bn 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 £100bn 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.

Ryan Bourne is head of public policy at the Institute of Economic Affairs.

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