The Labour Government’s determination to restrict eligibility for Winter Fuel Payments is the sort of decision that the fictional Sir Humphrey Appleby would describe as ‘courageous’.
The House of Commons’ motion calling on the Government to delay the implementation of this change has no real chance of passing. But why on earth are Keir Starmer and Rachel Reeves willing to blow so much political capital for such a small saving to the taxpayer?
To recap, the Winter Fuel Payment is paid to pensioners in England and Wales at a flat rate of £200, or £300 for households with someone aged over 80. From this winter, it will be restricted to those in receipt of certain benefits, notably Pension Credit, which means that about 10 million people will ‘lose out’. This is expected to save around £1.5 billion a year.
As it happens, there is a strong case for making this change. The Winter Fuel Payment goes to almost all pensioners, regardless of income or need. Despite the name, it is not related to energy bills. Nor is it an essential part of the benefits system. Instead, it was another legacy of Gordon Brown’s penchant for clunky add-ons.
Moreover, pensioners as a group have done relatively well over the last decade or so. This is thanks partly to the generosity of the ‘triple lock’, which guarantees that the state pension increases each April in line with the highest of consumer price inflation, average earnings, or 2.5%.
In April 2024, the link to earnings meant the state pension was increased by 8.5%, a rise of £691 for those on the basic state pension (which most people receive) and over £900 for those on the new state pension.
The latest ONS data show that average earnings grew by 4% in the three months to July, which means that the basic state pension will rise by about £354 next April and the new state pension by about £460. The pension increases in 2024 and 2025 will therefore more than offset the loss of the Winter Fuel Payment (while still beating inflation).
Finally, the most vulnerable pensioners – those eligible for Pension Credit – will continue to receive the payment. They could also qualify for other support, including Cold Weather Payments, the Warm Home Discount, or help from local council’s Household Support Funds.
So, what is the problem?
The first is simply the optics. When in opposition, senior Labour figures from Keir Starmer down repeatedly supported the idea of universal Winter Fuel Payments and criticised any suggestion that they might be ‘means-tested’. And yet, here we are.
Obviously, Labour is trying to blame the previous Government. When she announced the change, Rachel Reeves claimed that this ‘tough decision’ was necessary to fill the shortfall in the Conservatives’ spending plans.
But that simply does not wash. For a start, as I have argued here before, much of the shortfall reflected decisions that the new Government itself has taken. Critics can draw a straight line been restricting Winter Fuel Payments and the above-inflation pay rises that the Government has chosen to give to public sector workers.
Others can argue that the Chancellor could have found the money in many other ways. Indeed, the announcement on Winter Fuel Payments has given a fresh boost to calls for an annual ‘wealth tax’ (despite all its many flaws).
The timing is off, too. It is fair enough to say that the state pension will jump again next April, but the Winter Fuel Payments would normally be made before then.
The decision was also taken before the OBR will have completed their comprehensive forecasts for the October Budget, which will provide the full picture on the public finances. There was no need to rush to find £1.5 billion of savings now, which is, in any event, small beer in the context of overall government spending and debt.
The only credible explanation I can think of is that the new Chancellor wanted to send a clear warning to ministers in other departments ahead of the Autumn spending review – ‘ask for too much money and I will have to cut other benefits’. But sending that message has come at a high political price.
Last but not least, there are a great many pensioners (up to a million) who are eligible for Pension Credit but who do not claim it, so they will be hit particularly hard (followed by those just above the income limit for this benefit).
The Government has said it will bring together the administration of Pension Credit and Housing Benefit and take other measures to improve take-up. But ironically, the net result could be that the Treasury ends up paying out more in additional Pension Credit than it saves on Winter Fuel Payments.
In my view, that might not be a bad thing. Restricting (or completely scrapping) Winter Fuel Payments makes sense alongside a fundamental review of other benefits, including an increase in both the take-up and level of Pension Credit. This would result in better targeting of limited resources.
However, if the Government is looking to make an overall saving – as it should be – this should also include a review of the ‘triple lock’ itself. That, unfortunately, is not going to happen any time soon. Instead, it looks like we will be stuck with another piecemeal change to the welfare system that barely saves any money.
This article was first published by CapX on 9 September 2024
Ps. I’m starting to see a lot of ‘but Britain’s state pensions are the worst in Europe…’ That’s true on some measures, but i) the UK’s flat rate state pension is more generous (relative to wages) for those people who had lower incomes when in work, and ii) this doesn’t take account of the UK’s relatively developed system of private pensions (including autoenrollment). Of course, not everyone has a private or workplace pension, but I think that actually strengthens the case for focusing support on those who don’t, for example via Pension Credit, rather than just raising the state pension for everybody regardless of need.
Plain-speaking Economics 