Social historians should note the date – May 18, 2017. It marks the day that one of the most expensive political rules ever made was finally ditched.
A decade ago, when I was a welfare minister in Tony Blair’s government, we were reforming the state pension. I suggested scrapping the tiny additional age allowance, paid at age 80, and rolling into the total state pension budget. I was emphatically over-ruled by senior colleagues. Their argument: ‘you must never take anything away from pensioners.’
And that was the rule. The coalition government that followed us doubled down on it.
David Cameron’s government made the most absurdly expensive pension commitments ever, by introducing the twin policy of the New State Pension and the ‘triple lock’ on its value. I bet officials said it was unaffordable. But the ‘pensioner rule’ took precedence.
The NSP – now rolling out – and the ‘triple lock’ have taken the cost of state pension provision to £102bn. That’s about the same as the entire NHS budget. But it’s the forward projections that take your breath away.
According to ONS data, the state pension bill will reach £116bn by the mid-point of the next Parliament, and £170bn by the end of the next Parliament.
Far from taking nothing away, policy has been shovelling more and more resources towards Britain’s 12 million pensioners. The political imperative is obvious: they vote.
But the budget is never going to come back into balance, and the NHS is never going to get the extra funding it obviously requires, if the state pension budget continues growing at its projected rate.
Predictably, much fuss followed the revelation that the Conservative manifesto was marking the of the ‘triple lock’ and of the universal payment of the winter fuel allowance.
In financial terms, these changes are small beer. Now that inflation is above 2.5%, the ‘triple lock’ costs nothing extra at all. It only incurs cost when inflation and earnings growth are both unusually low. The full cost of the winter fuel allowance is £2bn. We don’t have the details of the promised means testing, but the best guess is it might end the payment to 4 million at the most – that would save £600m.
Financially, the moves are insignificant. Politically, they are huge.
A party, mounting a serious bid to be elected to government, feels it can take things away from pensioners.
If the gamble works, then the implications become really interesting.
The New State Pension, combined with the ever increasing number of pensioners, is the largest single driver of the budget. It’s unlikely that the terms of the NSP will be changed in the foreseeable future. The only way of funding it, long term, is to keep raising the State Pension Age.
That’s taking away from future pensioners, not todays’ pensioners.
Current plans see the SPA rise to 66, then 67, then 68 – with the prospect of further deferral in the long term.
This is the area that yields real cost containment. The Conservatives have committed to maintaining an SPA ‘that reflects life expectancy’. That could imply further deferral of SPA – which saves billions.
Labour says it would keep the move to 66 but then go no further. That costs billions.
Now that the old rule has been torn up, other pensioner benefits – although the total cost is not much over £1bn – may come under scrutiny. The Conservatives have committed to maintaining them for the next Parliament. But what after that?
The commitments that successive governments – in particular the Coalition – made to pensioners were always unsustainable.
Even after the abolition of ‘triple lock’ and universal winter fuel payments, they still are.
But before May 18, 2017, it looked as though any party seriously bidding for election would never be able to admit that the offer to pensioners was, in truth, undeliverable.
Not any more.
The only question now is how far the process of reformulating the pensioner offer, and making it affordable, goes.
So far, it’s the tiniest of small steps.
But it’s the direction that really matters.