The Week in Politics: Pensions debate? Quick! Make like an ostrich

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The Independent Online

It was Robert Reich, the Labour Secretary in Bill Clinton's administration, who warned that the problem with tax and benefit "credits" is that you don't get any political credit for them. That is precisely how ministers in Tony Blair's administration felt this week as their record on pensions came under the spotlight.

Downing Street has always been wary of the "credit" schemes for working families introduced by Gordon Brown since 1997, which, on the one hand, have redistributed wealth from the better off to the working poor, but, on the other, are complicated and expensive. Cabinet ministers moan they were railroaded through by the Chancellor without the microscopic scrutiny he gives to their spending plans.

Now the tide in No 10 seems to be turning against Mr Brown's strategy of means-testing help for pensioners, which came under fire from Adair Turner's Pensions Commission in its report on Tuesday.

As usual with reports about "splits" between Mr Blair and Mr Brown, the truth is a little more complicated. The Prime Minister agrees that Mr Brown was right to give priority to lifting 1.8 million pensioners out of poverty. It would have been a scandal not to do so, and crazy to spend the money on across-the-board rises that would pay the same to a retired dustman and a millionaire.

So the Treasury and Downing Street see no reason to concede that the Pension Credit scheme was a mistake. Privately, there is an acceptance in both No 10 and No 11 that a means-tested approach is not sustainable in the long term; it could eventually apply to 83 per cent of pensioners, and cost the equivalent of 11p on income tax by 2050.

There is not yet agreement on what - if anything - Labour should say about pensions before the general election, expected next May. Some ministers are tempted to hide behind the fact that the Turner Commission will not produce its final report for another year. This is no accident, but a rather cynical piece of timing by the Government.

This ostrich-like option is in favour at the moment, but I suspect it will not last. Far-sighted ministers recognise Labour will pay a heavy electoral price if its manifesto merely defends its record. Labour MPs, who sense trouble on the doorsteps, are already clamouring for a new policy before the election.

Frank Field, the former minister for welfare reform, has calculated that the next election will be the first in which a majority of voters who turn out will be pensioners. He reckons 80 per cent of those who vote will either be retired or within 15 years of retirement. In a typically impressive speech, Mr Field told the Commons on Wednesday: "The pensions time bomb has not only been found, but it is ticking, and people want to know what sort of approach each of the political parties will have when they go into the election."

Mr Blair wants to build a national consensus around Turner's final report, but the danger is that Labour will be outflanked. There is already growing consensus, which includes business and pensioners' groups, the Tories and the Liberal Democrats, for a significant increase in the basic state pension as part of switch from a means-tested to a universal approach.

Labour's private polling is ringing alarm bells among ministers, who fear the "grey vote" will desert the party in droves. As one cabinet member who opposes Mr Brown's means testing told me rather crudely: "Our problem is that pensioners vote and that poor people do not."

I doubt the Chancellor will stand idly by. I would bet my meagre pension on him pulling a rabbit or two for pensioners out of his hat when he presents his pre-Budget report next month, or in his pre-election Budget next year. He might even announce a generous increase in the basic state pension - even if that would appear to be at odds with his strategy of targeting help on those who need it most.

Sadly, Labour will be less keen to talk about long-term reform of pensions until after the election. We will get a few hints about a "mix and match" approach, including incentives for people to work past the age of 65 and to save for their retirement. But potentially difficult options - such as raising taxes to pay for a higher basic state pension - will be strictly off limits. So will the issue of whether pension contributions should be made compulsory, which goes to the heart of the matter. A Blair aide said: "Tony knows we must have a debate about compulsion, but he doesn't want it until after the election." The subject is deemed too hot to handle. It is difficult to see how people on low incomes could be forced to save money they don't have, and there is little prospect of finding a "third way" to satisfy both sides of industry. The unions want compulsory contributions by employers, which the employers oppose.

In a speech on Monday, Mr Blair said the "big challenges facing the country", including pensions, require "bold and far-reaching reform." They also require a big debate. At a time when politicians express concern about media cynicism, voter disengagement and low turnouts, it is a pity that being "bold" does not extend to a proper debate before the election.