For reasons I shall never be able to fathom I set myself the task of reading the Bible from cover to cover when I was fifteen. Yes. Fifteen. Madness of course. If only because about 99% of it was, to an ill-educated teenager, either incredibly boring or simply incomprehensible. How about this, for instance, from Matthew 13:12: “For unto everyone that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.”
I suspect you’ll have guessed why that came to mind this week: the vote in the Commons approving the government’s decision to end the winter fuel payment to pensioners. Some of them, like me, can perfectly well manage without the payment. Some might struggle even more than they are already struggling to keep warm this winter. And that raises, of course, one of the most fundamental issues facing every democratic government on the planet: how to redistribute the nation’s wealth raised by taxes in a way that is both fair and effective.
It’s likely any politician repeating St Matthew’s injunction today wouldn’t last thirty seconds, no matter how they tried to justify it on strictly theological grounds.
So the question I’d like to raise this week is where the line should be drawn and specifically whether Sir Keir Starmer has sent the wrong signal or whether he was merely doing what had to be done?
Obviously, the government itself has no wealth of its own and must impose taxes to pay for vital services and help those most in need. Much of the time we grin and bear it. We need schools and hospitals and our armed forces and (dare I say it in this of all weeks?) prisons and they don’t pay for themselves after all. It’s when we get to ‘those most in need’ that it can become a little more politically sensitive.
The Christmas bonus for pensioners goes back to 1972. It was introduced by Ted Heath when he was prime minister and the weekly single pension was £6.75. The bonus was £10. As Daniel Finkelstein pointed out in the Times this week, it still is. But the heating allowance now is £300. Or rather, it was until MPs voted to abolish it this week.
Analysis by the Joseph Rowntree Foundation estimates that the change could push 100,000 pensioners into poverty. The unions accused Starmer of ‘picking pensioners’ pockets’ and they compared Rachel Reeves, the chancellor, to the ‘Grinch at Christmas’. At the TUC conference in Brighton, Mick Lynch, general secretary of the RMT said: “They’re going to have to do something about this historical mistake, but they will always be known as the people that stole the winter fuel allowance.”
Starmer says he had no option. He blames what he and all his ministers repeatedly describe as the black hole in the economy that his government inherited from the Tories. And anyway, he points out, the loss of the £300 will be more than compensated for by the increase in the state pension that will come into force next April. The full pension should rise by about £460 a year. That’s because of the so-called triple lock that was introduced in 2012. It guarantees the annual pension will increase by whichever rises the most: inflation or annual earnings average earnings. And the increase cannot be lower than 2.5%. In the three months to July pensions grew by 4%, according to the Office for National Statistics.
So clearly that is a hefty commitment for the government or, if you prefer, the taxpayer. And it’s only one of many. Finkelstein is not alone in pointing out that these are not temporary difficulties caused by Tory incompetence that will soon pass. The challenge, he says, is structural and requires a long-term response: “Over the medium term our public spending commitments are unsustainable at present levels of taxation.”
The government’s official economic forecaster – the Office for Budget Responsibility – agrees with that. It has just published a report on our national debt that will send a shudder through the most optimistic economist in the land. The nation’s national debt, it says, is on course to treble over the next half century. It could be even worse because of an ageing population, the cost of climate change measures, and what it calls ‘rising geopolitical tensions’. In simple language: the risks of war.
The reaction from the government was unsurprising. The Chief Secretary to the Treasury Darren Jones said the forecast had “laid bare the shocking state that our public finances were left in by the previous government”. He warned that the UK is facing the “highest debt since the 1960s and the highest taxes since the 1940s”.
The OBR said without extra tax revenues or a return to post-war productivity levels, the public finances were not sustainable over the long term, and “something has got to give”. But what might that ‘something’ be? What should it be? The only alternative to raising taxes is to cut spending. But where?
The OBR suggests three potential areas.
One is defence spending, which currently amounts to about £55 billion a year. Many experts say it should be even higher. The government’s target is to raise it to 2.5% of GDP.
Another is the huge costs involved in transforming the way we generate electricity to achieve net zero in the war against climate change.
The third is the biggest: health and social care, pensions and related benefits. By 2071, the OBR projects an increase to more than £200 billion a year.
Based on policy settings from March 2024, the OBR’s analysis warns that public finances will be put on ‘an unsustainable path’.
If we accept that doom-laden forecast – for which the government lays much of the blame on the previous government – then we have to face those two unpalatable options. We either cut spending or we raise taxes.
If your instinct is to cut government spending where would you wield the axe?
Defence spending might seem an obvious target, but the carnage in the Middle East and Putin’s war against Ukraine suggest we should be spending more on defence rather than less. Many argue that the world is a more dangerous place now than it has been since the end of the Cold War. Putin added to those fears this week with his warning to NATO of retaliation if Ukraine is allowed to strike targets inside Russia with Western-supplied missiles. He said such an agreement would be tantamount to NATO directly entering the war and “will mean that NATO countries, the United States, and European countries are fighting Russia”.
Then there’s the NHS. The Darzi report this week concluded the service is in a ‘critical condition’ amidst surging waiting lists and a deterioration in the nation’s underlying health. Darzi identified serious and widespread problems which Starmer described as ‘unforgivable’. He said people have every right to be angry and said some of the failings are a matter of ‘life and death’. He also said he would not keep pumping more money into the NHS unless things improve.
The one thing all political parties have in common is the promise that the country would grow richer if they were in power. Public services would be run more efficiently. Industry and commerce would become more productive. International agreements would give us access to markets that had previously been denied us. And we would all work harder and more productively.
In the real world they know it is we, the taxpayers, who have to pay for the promises they make and the reality of the choices they must face. Which takes us back to this week’s choice: the decision to cut the winter fuel payment for pensioners.
Was it the right choice? Would you have been prepared to see your tax bill increased to retain the payment? And given that the government’s first budget is on the horizon, how will you react to what seem to be the inevitable tax rises? And should those who are relatively well-off pay a larger share than they are paying at present?
Let us know.
