Ed Balls, the shadow chancellor, has declared himself in favour of removing the Winter Fuel Payment to richer pensioners. The basic rate of WFP is a flat rate payment of £200, with more for those over 80.
The arguments about principles are well known, but the key issue has always been about mechanisms. Denying benefits to richer people means, of necessity, that there has to be some way of identifying who the richer people are, and means-testing benefits is complex, error-prone and expensive. Balls also commented on the free TV licence for those over 75; while he might be minded to withdraw it selectively, there wasn’t a practical method of doing so.
How, then, is Winter Fuel Payment different? The answer seems to be that 600,000 pensioners pay the higher rate of tax, so that when their taxable income is declared, the money for the Winter Fuel Payment can be clawed back. That is reasonably practical, which is more than can be said for some of the other proposals to means-test universal benefits. It will, however, mean that some pensioners will decide not to claim, and so that the tax regime will then have the problem of verifying who does, and who does not, receive WFP. It would be simpler to pay it to everyone regardless and then to raise what’s needed from the tax system.
There is a neglected aspect of Winter Fuel Payment that is worth saving. Forget the name of the benefit – this isn’t about fuel. Winter Fuel Payment is the only benefit paid to every pensioner, in the same way that Child Benefit is the only benefit relating to every child. It is, therefore, the most practical mechanism available to distribute resources to pensioners. Ed Balls wants to revitalise the economy by stimulating demand; his best shot to date has been to propose a temporary reduction in VAT and (as any shopkeeper can tell you) that’s a long way from being simple or straightforward. He could inject cash into the economy more rapidly, more effectively, more precisely and more progressively by putting it out through Child Benefit and Winter Fuel Payment. Governments should think twice before they throw away their best tools.