UPDATED 3 OCTOBER 2023
Another autumn, another round of people saying means-test the winter fuel payment. Somne even saying do that and use the money saved to save the triple lock.
Another autumn, another round of people saying means-test the winter fuel payment. Somne even saying do that and use the money saved to save the triple lock.
Let me declare an interest. I am old enough to get the £200 tax-free Winter Fuel Payment (the extra £300 is a cost of living payment last year and this and not technically part of the WFP). And I might add I do not in the slightest need that money. If it disappeared tomorrow it would not leave me freezing in the winter and wondering whether to choose turning up the heating or buying a few groceries.
So I get it; I do not need it; and the amount is small enough in my personal financial affairs that whether I get it or not is neither here nor there.
That leaves me uniquely able to say unequivocally that it would be complicated, counterproductive, and wrong to stop Winter Fuel Payment for those over state pension age of 66. Here’s why.
First, complicated. Who would you take it away from? Everyone who admitted they didn’t need it? Everyone called Paul? Everyone who paid higher rate tax? That would be possible but it would create a cliff edge at an income of £50,270 – earn an extra £1 or your pension rises £1 a year and you would lose £200. And it would not save much. The Government estimated some years ago that ending it for households with an income above £35,000 would save just £270 million out of the total cost of more than £2 billion. The administrative cost could be £25 million a year or more.
You would save more by following what one tweeter suggested to me. Go down the income scale and only give these benefits to those poor enough to pay no income tax. Then the cliff edge would move down to £12,570. That would save more but would certainly take it away from many who did need winter fuel payment to keep warm in winter living on less than £241 a week.
Another problem is that these are individual entitlements so the non-taxpaying spouse or civil partner of a higher rate taxpayer would continue to get it.
The same problem would be found if the payment was taxed as income. Where two pensioners share a household the £200 is split in two - £100 each. So each partner would have to be taxed separately on it. And where one partner earned, say, £1,000,000 a year and paid 45% tax on the payment, their partner may have no taxable income and pay nothing. So a household where many think the payment is not needed would still keep £155 of it.
There would also be problems where the payment just tipped someone over from being a non-taxpayer to paying tax. How would the right amount be collected if, for example, winter fuel payment pushed an individual £50 above their tax threshold and they owed £10 tax? Solving those problems would be expensive and a back of the envelope calculation suggests the tax take might be less than £200 million a year.
The same problem would be found if the payment was taxed as income. Where two pensioners share a household the £200 is split in two - £100 each. So each partner would have to be taxed separately on it. And where one partner earned, say, £1,000,000 a year and paid 45% tax on the payment, their partner may have no taxable income and pay nothing. So a household where many think the payment is not needed would still keep £155 of it.
There would also be problems where the payment just tipped someone over from being a non-taxpayer to paying tax. How would the right amount be collected if, for example, winter fuel payment pushed an individual £50 above their tax threshold and they owed £10 tax? Solving those problems would be expensive and a back of the envelope calculation suggests the tax take might be less than £200 million a year.
The next step might be link it to pension credit. But the level of pension credit is less for younger pensioners than it is for older ones. So that would be another divide. And of course an estimated 850,000 pensioners who could get pension credit do not claim it and would not get the Winter Fuel Payment either. Though as they are already living below the pensioner poverty line they certinly need it.
Now, I know your next argument. It is one I have made myself. Surely, you are thinking, surely all that Oxbridge brain power in the civil service can come up with SOME scheme to rid me of these turbulent pensioners? Well, they might. They did come up with a scheme to tax child benefit at up to 100% where a parent has an income over £50,000. That sort of works except a lot of those who should pay the tax did not know about it and are now being pursued for arrears. The others have the bother of filling out a self-assessment form or not claiming child benefit at all which could cause them problems later in life.
So that is the ‘complicated’ bit.
Now ‘counterproductive’. The thing about these universal benefits – ones that you get on grounds of age or condition – is that they go to everyone in those categories. Those who need them do not have to declare their poverty to get them. If they do have to take that step then many simply do not claim. A total of £19bn is unclaimed in varous means-tested benefits by people of all ages (Policy In Practice 2023). As I said an estimated 850,000 pensioners do not claim £1.75 billion in pension credit. Add in housing benefit and council tax support and the figure is a lot higher.
Paying everyone Winter Fuel Payment is the price we pay as a society so that my neighbour Marjorie, too proud to claim means-tested benefits though she needed them, at least got her winter fuel payment in her last years. If you means-test winter fuel payment then poverty among pensioners would grow as many who needed it failed to claim what they could get.
And finally ‘wrong’. In a way this is an extension of counterproductive. Some countries call the government departments that run social security or health the Ministry of Solidarity. Because state benefits represent solidarity. Between the sick and the well. Between the jobless and those in work. And, of course, between young and old. There are times and circumstances in life when the state should step in and transfer money from one group to another. Just as the childless pay for schools. The law abiding pay for the police force and the courts. And those without solar panels on their roof pay for those who get cheaper power from them.
In summary, taking winter fuel payment away from richer older people or from older people deemed not to be poor would save relatively little, cost a lot in administration, increase poverty among the old, and undermine solidarity between the generations.
This is a revised version of a blog first published in 2012 and 2015 when there was also a debate about whether to means-test free bus passes.
3 October 2023
version 2.0
version 2.0
