Why Starmer and Reeves cannot back down on pensioner squeeze
Governments get into a mess when pragmatic decisions that go wrong become tests of authority and principle. This is the tragi-comic fate of the Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer following their decision to abolish universal pensioner entitlement to the winter fuel payment.
The chancellor announced the controversial welfare saving to prove to investors that she is serious about improving the health of the public finances.
Her logic was that if she was having kittens about the £22 billion current year “black hole” that she says the Tory government bequeathed her - and my goodness she doesn’t tire of telling us how anxious she is - so too would be the City of London and investors.
That is why she engaged in a “lite” version of Osborne’s 2010 austerity. And her advisers and colleagues keep telling me she was only doing what Treasury officials told her was essential to prevent a fall in the price of government debt and an associated rise in market interest rates.
This justification however is laughable, as I normally tell them. And I mean that literally. Because when I talk to City investors controlling gazillions, they snort and giggle at the idea they would have turned against the self-defined iron chancellor if she hadn’t taken £1.4 billion from pensioners.
The point is that tens of billions of pounds will be needed to fix UK public services, and that £1.4 billion is smaller than a rounding error.
The idea that Reeves’s fiscal credibility - which is high in any case - would be made or broken by the pensioner raid is absurd.
Even on the basis that it is an inefficient use of public money, because rich pensioners don’t need it, she could have waited till her October budget before deciding whether to means test the energy subsidy - and she could have announced the change in a strategic fashion along with assorted tax rises and spending re-allocations.
If her Treasury officials told her otherwise, as her political colleagues insist they did, then its market intelligence is rubbish and it is not the institution it once was.
As it happens, Treasury sources tell me Reeves’s defining characteristic is she is more old-school, small “c” conservative Treasury than they are, and that the pensioner squeeze was all her.
Either way, the argument is no longer about market economics, if it ever truly was.
It is now about competence and who is in charge.
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If Starmer and Reeves are bullied into a u-turn by left wing MPs, the Tory press and trade union leaders, despite their enormous commons majority, then there would be a question about their ability to do what Starmer calls “tough, unpopular” things.
So early in his term, that would be a problem.
This is why, in their every utterance, they now talk about taking cash from pensioners as the very bedrock of their big ambitions to restore confidence in the UK and generate world-leading economic growth.
The point is that a gambit that was never at inception necessary to keep the confidence of investors has now acquired market significance: investors would look more warily at UK government debt and sterling, if Starmer and Reeves cave when the political heat is turned up, however ill-conceived the initial policy.
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