The Labour government has been heavily criticised for removing the winter fuel allowance for most older people and means testing it for the remainder. There is also support for the measure in respect of wealthier pensioners who do not need it. There will be a vote in the Commons today. It is unlikely that the government will make a U-turn but the current position is unsustainable. Too many poor people will be made poorer.
The main concern is that the people who will suffer the most are those with very small private pensions that leave them ineligible for state benefits but with an income that falls far short of what is necessary to live on. Age Concern estimates there are over two million pensioners who fall into this group and will suffer real hardship this winter – after two years of exceptionally high fuel bills. Age Concern’s petition against the cut has almost 500,000 signatures.
Labour has tried to defend the decision on the basis that, with the triple lock, the pension increase next year will more than cover the loss, and that it is prioritising the poorest. The state pension increase for 2025 is likely to be around £400 per year and the winter fuel allowance is £300. The government also makes the point that other sectors of society have had their wages cut and many are not due any rise next year. However, the state pension is so low (£11,502 pa), any percentage increase fails to narrow the poverty gap for pensioners who do not have a private pension.
Pension credit
Greater take up of pension credit benefits (state support for pensioners on a low income) would access the fuel allowance for many under the new arrangements. The loss of the fuel allowance may now prompt more of those who are eligible for pension credit to apply for it. This would help those near the bottom of the income ladder but does not reach sufficiently high up the ladder. It will also draw pensioners into the welfare net (with all the attendant bureaucracy that will involve); an application may be a challenge for many and many will be unaware of their entitlement to it.
Fuel fund
Assuming the government would like to ameliorate the worst of the consequences, one option might be to set up a fuel fund for pensioners (and perhaps other disadvantaged groups) funded by a windfall tax on fossil fuel companies and invite applications for a winter fuel grant. A simple method of assessment would need to be established – perhaps banding incomes with an allowance rate and a cutoff point at about £20,000 income per (single person) household per annum. For comparison, a person over 21 on the minimum wage earns £21,673 pa.
Longer term this is not an ideal way to manage winter pressures and may be costly to administer. As with pension credits, those eligible may struggle to apply. However, some form of supplemental grant, managed through an organisation such as Age Concern, might be a useful addition to the range of financial help available to older people.
Bringing forward the pension rise
A more sustainable, non-bureaucratic and universal option may be to bring forward the pension rise due in April 2025 to November this year – in time for the worst of the winter. No pensioners would experience a loss of income, and some would have an additional £100 over the winter. It would enable the government to remove the fuel allowance completely and all the annual costs of its distribution.
There are 12.6 million pensioners in the UK. Bringing forward the pension increase (assuming the increase will be about £7.70 pw) by 20 weeks would cost just under £2bn while stopping the winter fuel payment (for all pensioners) would save £3.8bn. Pensioners with an income over £12,570 will pay tax on the increase at 20% and those with incomes over £50,271 at 40%. About 8.5 million pensioners pay tax, 5.6 million of them at the higher rate. The government could claw back about £80mn from lower rate taxpayers and £896mn from those on the higher rate (total £976mn), a saving, overall, of £2.7bn, with less impact on the poorest and the removal of the fuel allowance from those who do not need it.
