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Means-testing the UK’s Winter Fuel Allowance: how does this contribute to our understanding of the political economy of social security?

21/06/2013

Development Pathways

The UK’s Labour Party has recently responded to the Conservative – or in theory, Coalition – government’s attacks on the social security system by trying to prove they can be even tougher. To prove it, they’ve decided to go after one of the UK’s few remaining inclusive benefits and subject it to means testing.

When the Labour Party was in government, they introduced a Winter Fuel Allowance for older people. It provided an annual one-off payment to all older people of between £100 and £200 per year. As the article indicates, Ed Balls the Labour Shadow Chancellor of the Exchequer is proposing removing the benefit from the rich, arguing that this would help save costs.

As we’ve repeatedly tried to show, targeting social security benefits at the poor is a typical neoliberal response, driven by a desire to shrink the state and reduce taxes. It’s also a populist response since, at a simplistic level, the Labour Party’s proposals to remove the Allowance from the rich seem sensible. Why should the very rich receive a benefit that they clearly do not need? In a recent article, even Polly Toynbee – normally a progressive commentator on social policy – appears to agree with the Labour Party (see the article below). To date, she’s been an opponent of Conservative Party’s attacks on the UK’s poor so her conversion to a neoliberal policy thinking is surprising.

Balls’ proposal is similar to the Conservative Party’s means testing of the previously inclusive child benefit, which, until this year, all children in the UK had received. Now the richest families – around 20% in total – are excluded. Similar to Balls, the Conservatives also presented this means testing as a sensible and prudent way to reduce costs as the rich clearly do not need the child benefit.

 So, why is taking the Winter Fuel Allowance away from the rich a bad idea? As with many debates in social security, it all comes down to a discussion on political economy. Once the rich no longer receive the Allowance – yet continue to pay for it through their taxes – they will no longer support it. As Pritchett has argued, once the more powerful members of society no longer receive and support a benefit, it is likely to whither away, with the poor – ultimately – losing out. Interestingly, Peter Hain, a former Labour Minister, makes the same point in the Huffington Post UK, arguing that the next targets will be the remaining inclusive benefits. His view is that the Labour Party should embrace universal benefits and cautions against moving towards a system similar to the United States’ in which social security is only for the poor rather than inclusive.

As we explained recently the decision to means test the universal child benefit appears to be part of a broader plan by the Conservative Party to reduce support for the broader social security system, enabling large scale attacks to be made on the UK’s many means-tested benefits. A key concern is whether Balls has the same underlying aim. He was part of the former Labour Party team in government that was in thrall to the bankers, whose malpractices were the cause of many of the UKs current financial woes.

A more sensible policy – and one that could, in fact, lead to greater savings – would be to make the Winter Fuel Allowance subject to income tax. At present, it is tax free. If recipients were to pay income tax on the Allowance, the state would be able to claw back a proportion of the overall cost from a much larger number of people than Ball is proposing to exclude (the majority would pay 20% of the Allowance in tax, while the rich would pay 40%). However, to ensure that the poor and those in the middle do not lose out, the current Allowance could be raised by 20% so that, after taxation, most people continue to receive the same amount as now. It would only be the higher rate taxpayers who would receive less, but they would still receive 60% of the Allowance.

Of course, there needs to be a bit more number-crunching done to demonstrate that this proposal is, at least, fiscally neutral or, indeed, could lead to savings. But, importantly, it would ensure that the Winter Fuel Allowance remains inclusive and available to all, thereby strengthening its sustainability and increasing the chances that it will survive the UK’s drive for austerity, for which the poor are currently paying the price.  Despite being a relatively small benefit, the Winter Fuel Allowance is a real help for many poor older people. It would be unfortunate if it becomes yet another victim of neoliberal policies.

 

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