FINANCIAL ADVISER
NOVEMBER 2000
Labour benches erupt as planned
Throughout the Chancellor’s pre-Budget Statement Labour Members taunted the Tories at every suitable opportunity. But changing tax allowances for pensioners, the introduction of a new means-tested Pension Credit, and a bevy of other similar measures failed to ignite any genuine enthusiasm. It was not until the very end of that Statement, when the Chancellor announced the £5 and £8 pension increase for single and married pensioners, and an increase in the winter fuel bonus to £200 a year, that the Labour benches rightly erupted with genuine enthusiasm.
The national insurance pension increase looks like a defeat for the Chancellor’s long-term strategy. The Government’s has to date allowed the state retirement pension to in rise with prices thereby eroded the value as a percentage of average earnings. Instead pensioners would increasingly be helped through occupational, personal or stakeholder pensions, or by a growing reliance on the state run Pension Credit scheme. Despite the Chancellor stepping forward and bowing graciously to the applause, Gordon Brown has merely conducted a tactical retreat. How tactical that retreat is can be seen in the papers published along with his Pre-Budget Statement.
In the Pension Credit consultation document the Government lays bare the proposed increase in the state pension for the year 2003. While next year a single pensioner will gain a £5 increase, followed by a £3 increase the year after, the documentation makes plain that in the third year the Government intends to increase the state pension for a single person by £1.50 a week.
Once this figure is picked up by pensioner groups, and then generally by pensioners, it is unlikely that the Government will be able to keep to it. Pensions will be an issue in the next election. A re-elected Labour Government will increase this sum substantially. There will be much pressure during the election campaign for it to do so, should such a concession not be made before that crucial three week campaign.
The case for a more substantial increase in the state retirement pension is given again in the document on the Pension Credit. In year 2003, when the Pension Credit is in operation, half of all pensioners will still have an income of only £136 a week or less. And this figure assumes 100 per cent take up of the pensioner tax credit.
So while the Government sold the Pension Credit on the basis that an earnings link would also go to those one in six of pensioners now retiring in a household with over £20,000 a year income, the figures showing the impact of the Credit illustrate just how poor most pensioners are, and the fundamental role the state pension will continue to play in the budgets of most pensioners.
Any social security system – for the elderly or any other group come to that – will have a place for means-testing. What is crucial is whether Government strategy is about increasing the numbers on means-tests or reducing it. The Government still holds to a position which will significantly increase the number of pensioners drawing means-tested assistance, not only now, but way on into the future. It is that strategy which is questionable, but to which it holds firmly, despite the understandable celebration on the Labour benches when the Chancellor gave way to pensioner demands for a more adequate increase in the state pension next year.
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