Downing Street vs the Treasury: David Cameron and George Osborne clash over pensioners’ perks

Tensions between the Treasury and Downing Street have surfaced over David Cameron’s pledge to maintain pensioners’ perks such as winter fuel allowances, bus passes and free TV licences.

In a rare disagreement between the two men, George Osborne is said to be unhappy that the Prime Minister rushed out a statement last weekend saying he is “minded to keep” the benefits, issued in an attempt to head off media reports that they could be axed by the Conservatives after next year’s general election.

Withdrawing the perks from rich pensioners would deliver a relatively small part of the £12bn of welfare cuts Mr Osborne is seeking in 2015-17. But he believes that curbing them would make it easier for him to impose other social security cuts, such as his plan to restrict housing benefit for under-25s. One Tory Cabinet minister who shares the Chancellor’s view said: “It’s about fairness, not the revenue. How can you justify a £300 fuel allowance to a millionaire pensioner when you are making sensitive cuts in other parts of the welfare budget?” One Whitehall source told The Independent: “George Osborne is not convinced by David Cameron’s policy. He sees the politics of keeping them [the perks] until 2015 but does not want the policy to continue after that.”

Mr Cameron feels hamstrung by a pledge he made during the 2010 election campaign, when he denied Labour claims that the fuel allowances, free bus passes and TV licences would be at risk. He believes that breaking his promise would be his equivalent of Nick Clegg’s spectacular U-turn over university tuition fees. The Liberal Democrat leader supported their abolition in 2010 but then agreed that the Coalition should raise them to a maximum £9,000 a year.

Mr Osborne wanted the pledge to be limited to the current five-year parliament and signalled last summer that the benefits could be withdrawn from wealthy pensioners after next year’s election.

He said then: “All those pensioner benefits – not the basic state pension – all those other pensioner benefits, yes of course we have got to look at how we can afford them.”

Iain Duncan Smith, the Work and Pensions Secretary, is prepared to consider withdrawing the extra benefits from better off pensioners.

“He thinks you need to look at everything, that you can’t ring-fence pensioners’ benefits,” said one ally.

Mr Clegg has refused to sanction more welfare cuts by the Coalition before the election unless the Conservatives agree to review the perks for the elderly. Labour has pledged to axe fuel allowances for wealthy pensioners.

Today Downing Street and the Treasury denied there was any disagreement over pensioners’ perks. One Osborne ally said: “We are at one with the PM on this. There is no discord.”

Aides say the Prime Minister and Chancellor agree that, while scrapping fuel allowances, free bus passes and TV licences could save £4bn, taking them away from poor pensioners would provoke outrage, while ending them for the rich would save only tens of millions of pounds. There is also criticism of the way Downing Street handled the issue. Before a TV interview last Sunday, Mr Cameron announced the Conservatives would maintain the “triple lock” under which the basic state pension rises each year in line with prices, earnings or 2.5 per cent, whichever is highest. But critics claim Number 10 was slow to realise he would also be asked about his pledge on other benefits for the elderly. “What genius in Downing Street dreamt up this strategy?” a Cabinet minister asked.

On the BBC’s Andrew Marr Show, Mr Cameron left open the question of whether the perks would be retained after 2015. When the media began reporting they were under threat, he authorised a statement saying he was minded to keep them. The next morning, Mr Osborne was asked five times on BBC Radio 4’s Today whether the benefits would be kept. He did not go as far as Mr Cameron’s statement, saying he could not write the Tory manifesto for 2015 now. But he did say that the Tories’ values had not changed since the pledge was made.

When Number 10 and the Treasury fell out

Blair vs Brown

Although the prime minister is also first lord of the Treasury, a power struggle was inevitable since Gordon Brown was overlord of Labour’s domestic policy after giving Tony Blair a free run at the party leadership in 1994.

During Blair’s 10 years at Number 10, Brown demanded to know when his turn would come and MPs close to him destabilised Blair to force him to name his departure date.

Although their aides repeatedly denied they were at loggerheads, the depth of the hostility between the two men has since been confirmed in books written about the period. But the huge tensions did not stop Labour winning three general elections.

Thatcher vs Lawson

Margaret Thatcher was one of the most powerful prime ministers of modern times but her fraught relations with Cabinet colleagues ultimately led to her downfall.

Her once-strong relationship with her second Chancellor, Nigel Lawson, broke down in 1989. When Sir Alan Walters, her personal economic adviser, wrote a newspaper article clashing with Lawson’s views, the Chancellor demanded she sack him.

Thatcher refused; Lawson resigned but then Walters quit too. Although the PM survived, the writing was on the wall and the following year she was forced out by her Cabinet and MPs.

Macmillan vs Lloyd

In 1962, Harold Macmillan sacked his Chancellor Selwyn Lloyd, during a purge dubbed “Night of the Long Knives,” which was widely seen as panic in the face of bad economic news.

Macmillan lost his reputation as Mr Unflappable and his days in Downing Street were numbered. He resigned the following year.