Tuesday, 11 June 2019

Pensioners: two ends of the monied spectrum

Two announcements made yesterday affect pensioners at both ends of the monied spectrum.

As part of his pitch for the Tory  leadership (and hence the premiership) Boris Johnson announced that, if he wins, he will raise  the threshold for liability to the higher, 40%,  income tax rate from  £50 000  to £80 000 a year.  The cost will be partly offset by making recipients of these high salaries pay more National Insurance Contritions (NICs) for which at present the rate drops from 12% to 2% for incomes above £50 000.

However, pensioners don't pay NICs, even if we are working and receiving lavish (or even modest) incomes.  So he biggest beneficiaries  of Johnson's largess to the rich will be people over 66, working or not, whose combined salaries, investment incomes  and pensions exceed £50 000. Those on £80 000 will gain  by about  £3 000 a year, which is £60 a week.

They do not include me.  Indeed I wonder what they do with  all the money they already have.  Maybe pay school fees for grand-children to give them  an advantageous start  in life

By contrast the BBC announced that it cannot afford to continue to provide free TV Licences to the over 75s.  These cost £154.50, which is about £3 a week.  About  three million of us (yes, this one does include me) will lose this nice little perk.

 Mrs May, still prime minister,  is said to be disappointed, forgetting presumably that she was part of the government which dumped the responsibility for this payment from the government to the BBC back in 2015.

The poorest pensioners, who receive Pension Credit, will still be able to receive a free licence.  (I'm not sure whether this il be automatic or they will have to apply)  However, about 1.3 million families who are entitled to Pension Credit don't actually claim.  These are often the very elderly or people with disabilities.  So they will suffer most.

That's the trouble with means-tested benefits: the most in need often miss out.

Personally I have no objection to paying for a TV licence.  I can well afford it.  In terms of opportunity cost it's half a bottle of wine a week.  (My tastes in wine are modest - I'm very happy with plonk, or le pinard, as the French call it.)

A solution I've suggested before is not to give these otherwise universal benefits to anyone who pays income tax.  As a member of Liberty I am aware of the privacy implications of this but it does seem to me to be an acceptable way of avoiding the means-testing problem. 

I am, however, ashamed to be living in a country where our leaders believe, probably rightly,  that they will win elections by giving more to those who already have enough, and by taking away from those who have least.


  1. If someone is currently on £80,000 pa, the bit over £50,000 will be taxed at 40%, (30K at 40% = £12,000). If BJ's idea comes that £30,000 will be taxed at 20%, ie £6,000 so will the potential gain not be £6,000 ie £120 per week?

    1. Yes, sorry: I've been careless. The £3 000 presumably applies to the under-66s, who would have some of the gain taken away by increased NICs. Lucky pensioners would not have that adjustment so would gain the full £6 000 a year, as you say. They'l be able to afford even posher schools for their grandchildren and even fancier wines.

  2. There are several universal payments: the Christmas bonus, the Winter Fuel payment, the free TV licence. Arguably, all of these should be targeted at the poorest, but as you point out there is the danger that some will fail to claim. Perhaps a better approach would be to retain the universal payment of benefits but recover the payments through the tax system by reduction of personal allowances. One could do what is already done for earnings between £100k and 125k and reduce the personal allowance by £1 for every £2 increase in earnings.

    1. Yes, that would be another way. Or you could increase the pensioner's notional income by a factor which eliminates the value of the payment. For example, if the standard rate is 20% and the winter fuel payment is £200, call it £1000, so that all the value of the payment is taxed back.