The new Chancellor, Rachel Reeves, is pulling no punches about the £22 billion fiscal black hole that she has inherited from the previous Tory government.
She is fuming about the parlous state of the public finances. In a Commons speech, she exposed the scale and seriousness of the problem. It is much worse than anyone had predicted.
“They exhausted the reserve. They put party before country. They continued to make unfunded commitment after unfunded commitment.”
The claim that Labour have inherited the worst set of economic circumstances since the Second World War may appear to be over-egging the pudding, but the financial picture is dire. Taxes are at record high levels, public services are in decay and economy is flatlining.
The scale and depth of this crisis means we are in for a bumpy ride. Tough choices cannot be dodged.
Against the backdrop of this Tory wreckage, Reeves has controversially announced that she will end the winter fuel payment for those not on pension credit. Ending allowances for 10 million pensioners is estimated to save almost £3bn.
Winter fuel payments are a state benefit for pensioners that are designed to help with their heating bills. They were introduced in 1997 by the last Labour government and have been available to everyone in the UK who has reached state pension age.
Payments are tax-free, made annually each winter, and are worth between £100 and £300. The basic rate is paid automatically to anyone claiming the state pension. Higher sums are available to those who get other benefits, such as pension credit.
The payments are devolved, and the Scottish government has already introduced its own universal pension-age winter heating scheme.
It seems unlikely that Stormont will decide to follow England and limit the payments. However, the upshot is they will have to find the money from their already stretched budget.
This move is politically notable for a two main reasons.
Firstly, it is clearly an attempt to demonstrate that Labour is not afraid to take tough decisions. Taking immediate action and making unpopular choices helps to boost the chancellor’s credibility on fiscal discipline.
Labour must prove to a sceptical public that they can be trusted with the public finances. They must run the economy with iron discipline and a relentless focus on their priorities of growth, employment renewal and housing. Money must be targeted at those who need it most.
Secondly, the fact that protecting the winter fuel allowance is not a priority for this government represents a significant break from the principle of universality – services and benefits for all, regardless of income.
Previous Labour leaders have described universal benefits as the bedrock of our society. Advancing the cause of universality through the welfare state is source of great pride.
Universalism is about more than politics and economics; it is a principle that helps to define what type of society that you want to live in.
The left should be wary of abandoning this principle. History demonstrates that a narrower welfare state quickly becomes a shallower one. When the more powerful middle classes have no stake in the system, poor people are stigmatised as “dependent”. Services for the poor inevitably end up being poor services.
One of the great advantages of universal benefits is that they ensure support goes to everyone.
Reeves has stated that the government will continue to provide winter fuel payments to households receiving pension credit. Pension credit is a complex, means-tested benefit associated with particularly low levels of uptake. It is estimated that 35% of those eligible do not claim. Many older people assume that they do not qualify, while others are put off by the invasive process and perceived stigma. Despite numerous information campaigns by government and voluntary groups up, take-up has remained stubbornly low.
Targeting universal benefits for cuts makes little sense when the amounts saved would barely touch the edges of the black hole. Focusing on the billions lost to tax evasion and tax avoidance would surely be more appropriate. Or closing inheritance tax loopholes, or reforming capital gains tax.
The principle of universality is far too important to be sacrificed in a misguided attempt to prove the party’s toughness
Why, in a period of unprecedented rises in energy prices, has the Chancellor opted for this approach, which increases the risk of death from cold-related illnesses amongst older people?
This move paves the way for the further erosion of the welfare state. What’s next: bus passes, the health service, pensions?
The principle of universality is far too important to be sacrificed in a misguided attempt to prove the party’s toughness.
By further eroding the welfare state, the left is simply playing the Conservatives at their own game.
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