If Jeremy Hunt’s plan is to annoy his party’s most faithful supporters, last week’s budget succeeded beyond his wildest dreams.
A year ago, with the economy still weak, tax allowances frozen and the Tories struggling to escape from the shadow of Liz Truss’s disastrous premiership, voters over 65 still backed the Tories over Labour by two-to-one.
After November’s autumn statement, they continued to back the Conservatives by a 23-point margin, with the Tories’ losses to Reform offset by Labour losses to the Liberal Democrats. On the one hand, retired voters received no benefit from the two-point reduction in National insurance. On the other hand, Hunt promised that the state pension would fully compensate for inflation and rise by 8.5 per cent this April.
Last week, when workers received another cut in National Insurance, Hunt had no more cash for the over 65s. YouGov’s post-budget poll for the Times shows the result—a shift from two-to-one to level-pegging, and another big jump in support for Reform.
That is not the worst of it for the chancellor. Last year, the over-65s divided fairly evenly on whether the government was running the economy well or badly. Last week’s verdict was a massive thumbs down, with just 28 per cent saying well, and as many as 62 per cent saying badly. As Hunt told us that inflation had halved, the economy had turned a corner, and prospects for growth had brightened, the views of the very voters his party most relied on were summed up by the title of the Noel Coward song from the 1930s: “There are bad times just around the corner”.
As a recipient of the state pension anticipating next month’s 8.5 per cent increase, I was struck by these polling figures. Some of the latest change in attitudes might be the result of sampling error; however, the polling movements are far too big for this to explained away as polling wobble.
A more likely explanation is the way inflation and the freeze in tax allowances have chipped away at older voters’ spending power, despite the apparent generosity of the rise in state pensions. Let’s go through the numbers.
In the past three years, consumer prices have risen 21 per cent.
Next month’s rise in the state pensions represents a three-year increase of 23 per cent.
So, over the bumpy era of the Ukraine war, dearer gas and electricity and sharply rising food prices, older people who rely on the state pension seem to have been fully protected.
However, it’s not that simple. Low-income pensioners receive not just the state pension, but pension credit (to ensure a minimum total income) and, in many cases, other benefits which are means-tested. The pension credit has risen in line with the basic state pension. In the three years to next month, when the new rates take effect, the minimum guaranteed income of an elderly couple will have risen from £14,056 to £17,313 a year—the cash amounts resulting from the 23 per cent increase.
However, because tax allowances have been frozen, the amount of income tax they pay will have more than tripled, from £297 to £949 a year. Once tax has been deducted, their net income will have risen by 19 per cent—that is below the rate of inflation; but not much.
Except that those figures relate to the overall inflation rate as measured by the Consumer Price Index (CPI). As always, this series averages a host of individual prices that don’t all rise at the same rate. In particular, according the official figures for the components of CPI, food is 31 per cent dearer than it was three years ago, and energy has almost doubled (It will still be 67 per cent higher than three years ago when the new, lower, price cap takes effect next month). These are things that eat up a higher share of the incomes of most pensioners than those of workers on average wages.
For those qualifying for extra means-tested benefits, the picture is even worse, for these have been rising more slowly than the state pension, and so less than inflation. And, of course, the cuts in National Insurance have passed pensioners by.
There we have it. Hunt tells pensioners: “I have protected your standard of living;” to which millions now reply: “Oh no you haven’t.”
The consequences can be seen in Opinium’s post-budget poll for the Observer. Voters under 65 are evenly divided on whether the impact of the budget on their own finances will be positive (28 per cent) or negative (25 per cent). (The rest said “neither” or “don’t know”.) But among the over 65s, only 8 per cent say positive, while 30 per cent say negative.
Two qualifications should be made. First, over the past quarter-century, the state has treated pensioners more generously than others needing benefits to support a basic standard of living. Pensioner poverty is rarer than it used to be.
Second, the latest 8.5 per cent rise in the state pension has yet to take place. Perhaps some older voters will be happier with the government next month when the money reaches their bank accounts—and also when gas and electricity prices fall further.
However, the scale of disaffection among the over-65s is telling. The Conservatives badly need to win back the older voters on whom they have relied for many years. Can they? It’s the question that should now be haunting Hunt, Rishi Sunak and dozens of Tory MPs who used to think their seats were safe. Before long we shall find out if they have an answer.
