Reader's Letter Of The Day

From The FT:

Sir, Of course, Philip Stephens is right that there is no rational justification for winter fuel allowances and free bus passes for the well-off elderly; and I will happily surrender mine (“Free bus passes will test Cameron’s mettle”, June 8).

However, there is a danger in the removal of benefits from the better-off. Loss of benefits is a form of income tax, but an income tax with a marginal tax rate that jumps up and down in an arbitrary way at different points of the income distribution, adding to the complexities already introduced by the recent ill-considered change in tax allowances for pension contributions.

[If we want the better off to] make a generous contribution to closing the fiscal gap, ... the government should do this clearly and honestly by raising income tax rates. And if the elderly poor are short of money for bus travel and winter fuel*, let's also deal with that clearly and honestly by giving them more money.

Alasdair Smith, Research Professor of Economics, University of Sussex, Brighton.

It's nothing I haven't said a hundred times before, but it's nice to see it in print - benefits withdrawal is like income tax but complicated and dishonest, and the net effect of taking away benefit from those perceived to be 'better off' can only benefit those who really are very wealthy. Maybe you hate universal benefits or higher tax rates, but at least they're honest.

Similarly, it is absolute madness to simultaneously have benefits 'targeted' at the poor (as defined) and a parallel system of contributory benefits for the majority; or to simultaneously apply means-testing while paying out contributory benefits - the two effects more or less cancel out. This isn't politics, it's maths.

* He makes a mistake here - winter fuel allowances are indeed money, a pensioner can spend them on what he likes, unlike a free bus pass which is 'use it or lose it'.