Monsters under the bed

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Apparently, the whole structure of the UK’s economy was in dire peril of complete and immediate collapse unless the government implemented means testing for the winter fuel allowance. Yes, the money markets were all demanding a raid on the income of pensioners, and threatening a run on the pound, increases in interest rates, and an economic crash if their demands were not acceded to. At least, that’s what the leader of the House of Commons told us yesterday, so it must be true.

The funny thing is that most of us know people who have the odd few pounds invested in premium bonds or other government savings products, and none of them seem to have been clamouring for an attack on pensioner income. Nor as far as I am aware were the pension funds who own so much of the government’s ‘debt’ demanding that those who benefit from their funds should have their income arbitrarily and suddenly cut. I doubt that those companies who also own part of that ‘debt’ were really demanding that the spending power of 10 million of their customers should be cut. And it seems highly unlikely that those foreign governments who own part of the ‘debt’ in order to facilitate trade with the UK cared much one way or the other. Those money markets of which the government is so terrified end up looking more akin to the monster residing under the bed of a small child than a real and present danger, particularly when the savings involved are, at best, marginal.

But the phrase ‘at best’ is doing a lot of work there. Apparently, the government believe that stopping the payment of the allowance to all pensioners who aren’t receiving pension credit will save around £1.4 billion a year. That’s a lot of money for any of us as individuals, but little more than a drop in the ocean for the UK government. And stung by the criticism, the government are mounting a campaign to persuade those who are eligible for pension credit but not currently receiving it to apply now. We can fairly easily calculate that the cost of restoring the fuel allowance to the roughly 880,000 households involved will be somewhere around £200 million. Add on several millions for the cost of the advertising campaign, and the saving is reduced to a little over £1 billion. Still worthwhile if you’re looking to cut government expenditure? Not so fast.

If all those 880,000 households claimed the full amount of pension credit to which they are entitled, the bill for pension credits would increase by up to £2.1 billion. The same pensioners are currently not claiming housing benefit to which they are also entitled – another £1.3 billion. So if the government’s advertising campaign is a runaway success (and that’s what they say they want), they will have spent an extra £3.6 billion in order to save £1.4 billion. It could be, of course, that they are not being entirely truthful in saying that they want people to claim pension credit, and expect their campaign to fail. Government ministers being less than truthful is hard to believe, I know, but we can’t discount the possibility. On the other hand, if we make the assumption that they are being honest, that leaves us with an inexplicable mathematical quandary. Failure to make the £1.4 billion cut would lead to economic collapse, but spending an extra £2 billion plus would not. Labour’s grasp of basic arithmetic turns out to be no better than that of their predecessors.