Winter Fuel Payment

Like many people, I am struggling to understand why the new government chose Winter Fuel Payment as an issue to make a stand. The difficult headlines are enduring; opposition to the decision is coming in from the right (more pensioners vote - and more vote Conservative), other opposition parties, many Labour MPs, as well as those to the left. However, the contribution that cutting the fuel payment makes to the budget deficit is relatively small. It will be even smaller if all of the pensioners who are still eligible for it via pension credit actually get the applications in. Why risk it?

One explanation of this I have heard is that the government wants to convey to the financial markets at home and abroad that it is serious about keeping the finances under control and filling in the £22 billion shortfall, which many (but not all) analyses believe is there. The problem for Labour is that it looks like they are making vulnerable people pay rather than those with more capacity to do so.

The problem with universal benefits is obvious. The point about Mick Jagger (or insert the name of any millionaire over retirement age) getting a winter fuel payment is a fair one. There is a significant cohort of pensioners who have good workplace pensions, have paid off their mortgage, and have better disposable incomes than many younger people struggling to buy homes or pay their rent. It is a legitimate question as to whether it is the best use of money to give more affluent retired people a fuel payment at all.

The difficulty in solving this is that means-testing benefits is often complicated and costly, not always saving as much as is hoped. Furthermore, any system that requires an application to be made (and these are always now online) has a number of risks - awareness, a certain stigma attached to applying for help, and not all older people are very confident with online applications.

Here's a suggestion: replace the one-off universal payment with a £300 supplement to the state pension that is in addition to any inflation increases, making it taxable. It doesn't take away all of Mick's £300, but it would at least claw-back money from the better off who will be paying tax on it - and for some that will be at the higher rate. It also uses existing systems, rather than requiring an fresh application to be made. For those without additional means, I think the pension is still below the threshold for income tax, so those with the lowest incomes would continue to receive the full amount with no further paperwork to complete. 

There may be other unforeseen problems with that, but I can't help but feel that it would have been a better and much less unpopular method to transition away from the blanket payment.