Pay off the oldest ones

Grey politics has arrived in Britain. The retired are now the fastest growing group of the electorate, and at the recent local elections they exercised their political power decisively in a way previously only seen in retirement enclaves in America.

A survey of defeated local councillors showed that pensioners were primarily responsible for Labour's drubbing. Pensioners' normally high turnout, and loyalty to Labour, was conspicuous by its absence. On the yearly uprating of the state retirement pensions, and on targeting the minimum income guarantee (MIG) to the poorest, the government has neither thought the unthinkable nor translated such ideas into the workable.

A relaunch on each front is urgent if justice is to be done to pensioners and the haemorrhage in the Labour vote plugged. To concentrate Labour minds further, the Conservatives are now extending their populist offensive to try to capture the pensioners' vote.

Most pensioners I have spoken to are eager to emphasise that the £150 winter fuel payment for each household, and free television licences for pensioners of 75 and over, is much more than the Tories ever awarded them. But in an age of rising prosperity they believe these "welcome concessions", as many pensioners put it to me, are no substitute for a proper pension increase.

Here the government needs to start winning the argument instead of what pensioners increasingly see as a constant gripe against their ingratitude. Thanks largely to occupational pensions, but also to Serps, many pensioners now retire with a second pension well in excess of the value of their state pension. This is the government's case for not awarding a large, across the board pension increase.

The poorest pensioners are those who are too old to have built up the second pension rights. Moreover, the older pensioners are, the more of their savings they will have spent. So while there is still an intellectual case for resisting a significant across the board pension increase, the facts should draw the government to a very different, targeted strategy.

At the moment the government relies on a means-tested approach which penalises those pensioners who went without holidays and those little extras so that they would not be a burden in old age. Decent working-class pensioners resent what they see as the government's mockery of their proper behaviour; the spendthrift, as well as the very poor who could not save, receive much help, whereas they are penalised.

The Tories solution to this should galvanise Labour into a rethink. The basic state pension is seen by the elderly as the appropriate way to reward years of paying national insurance contributions. What went unnoticed in the recent coverage of William Hague's speech was that as national insurance is not a tax, there is the possibility of the opposition cutting the tax burden by abolishing tax-financed initiatives such as winter fuel payments and funding the increased pension either from the surplus in the national insurance accounts or from increased national insurance contributions. The distinction between national insurance and taxation is one the Conservatives appreciated only too well in government.

Labour should award a big pension increase for the very oldest pensioners - who are typically the poorest. This would do much to assuage pensioner anger and present a coherence to government policy which is currently lacking. It would also send out the right messages about rewarding savings and honesty. The government would still need to negotiate itself out of the mire into which its MIG strategy has plunged it. Currently millions of pensioners with savings or small occupational pensions are often left with a lower standard of living than pensioners on the MIG. The sense of grievance here is difficult to underestimate.

Pensioners who save, and thereby disqualify themselves for MIG, can find themselves tens of pounds a week worse off than the pensioner who has no savings and who were not offered the chance - or refused the chance - to join a firm's pension scheme. The answer here is quite simple. Eligibility rules should be changed so that all pensioners would have their income brought up to the MIG level, plus full housing and council tax costs. Action is urgent on these fronts if Labour is to begin rebuilding its pensioner vote.

The author was formerly minister for welfare reform