The magic money tree is back

One of the unfortunate consequences of the restoration of winter fuel payments is that voters' faith in the magic money tree has been restored.   Shake it hard enough and it will deliver!

Pensioners, of course, are much more likely to vote and those over 55 voting exceeded those under 55 at the last general election.    

The Government has suffered political pain for little fiscal gain.  Ironically, although I will be (rightly) taxed on the payment I receive, my partner will receive it tax free.

The policy change encouraged more pensioners to apply for pension credit which is a good if unintended outcome but it reduces the fiscal benefits even further.

Why did the Government do it?   I think they were genuinely spooked by the state they found the public finances in and thought this would be a current financial year win.

It also means that no one is likely to challenge the triple lock although it has delivered pensions £800 higher than they would otherwise be because of the earnings link.

Its defenders will say that state pensions are lower in the UK than elsewhere in Europe, but private pensions are higher.   Not everyone has them, but that is why we have pension credit.

This policy change will encourage backbench Labour MPs to demand retreats on benefit payments and qualifications which means that it will be difficult to avoid tax rises in the autumn.

Two big challenges for the Chancellor

Those who admire David Smith's balanced and sensible assessments of the British economy are spoilt for choice in the Sunday Times this morning as he has two articles.

One points to the increasing cost of financing government debt as coupons on gilt edged stock increase.  Part of this is the result of the uncertainty created by Donald Trump's policies with interest on US Treasuries also rising.

However, UK gilt edged interest rates are also higher than in comparable economies.   Like the US we are running a twin deficit: on our spending and on our balance of payments.

More generally, Smith draws attention to the political reluctance to rein in public spending.   (My words) UK taxpayers continue to think that they can have American levels of taxes and Nordic standards of public services.   As for soaking the rich, the top one per cent already pay nearly one third of income tax receipts.

If I had been Chancellor, I would not have scrapped the winter fuel allowance, although I would have made it taxable for the one million or so pensioners who (like me) are higher rate taxpayers.   I would also have ended the emergency 5p Ukraine war cut in fuel duty introduced by Rishi Sunak.

Reeves is now hemmed in by Labour's election pledge not to increase the three main sources of tax revenue while welfare benefits continue to increase.  She is also hamstrung by her fiscal rules: breaking them could provoke a market panic.

I dislike the 'Rachel from accounts' misogyny from the right-wing press, but she has just two more chances to get it right: the impending spending review and the autumn budget.