The axe is hovering over the £2.7bn winter fuel payments. But cutting this bung to the over-60s is harder than it seems. Even if Osborne decided, say, to pay out £600m less than Gordon Brown, it would make no contribution at all to cutting the deficit.
How so? The Labour wheeze was to top-off the winter fuel payment with a one-off bonus each year, which was presented as a Gordon’s munificent Christmas gift. Last year it amounted to £600m. The Budget books doesn’t expect this bonus to be repeated, so the future winter fuel payments are only scored as £2.1bn in 2010, not the £2.7bn actually spent in 2009.
The dilemma for Osborne is:
– Find an extra £600m from savings or increasing debt to pay out as much as Brown in 2009, or
– Take the political hit from withdrawing £50 off all pensioners (and £100 off all those over 80), without any upside in terms of deficit reduction.
Hmm. Not easy. The issue is made even more fraught by Cameron’s ‘read my lips’ moment in the election debates, where he went well beyond the carefully worded commitment to protect the winter fuel payment in the Tory manifesto and coalition agreement.
Osborne is clearly aware of this problem and alluded to it today when I asked him whether he could guarantee the payments would be no less than Labour.
The context for this is the tight financial constraints Osborne has placed on Iain Duncan Smith, which make it likely that middle class universal benefits will need to be scaled back to pay for welfare reform.
The trouble with winter fuel payments is that you could cut them by almost a quarter — and you’d still be at square one.
Jim Pickard
Kiran Stacey