The Winter Fuel Payment has always come over as a little odd. It’s not a cold weather payment – the weather is irrelevant. It’s not really a winter payment – it’s based on the situtation in September. It’s not actually a payment for fuel – people are free to spend it on whatever they think appropriate, and while some people will use it to pay for a little more fuel, it’s unusual to use even most of it for that.
The proposal to abolish WFP is essentially, then, a proposal to cut the income of pensioners, currently by up to £300 a year. That cut is not self-evidently justified, because it reveals a somewhat distorted view of priorities, but it’s not fundamental either. If the government really wanted to rethink the distribution of income to pensioners, it would make far more sense to tax the state pension (that would only affect those pensioners who had combined income from state pension and other sources above the tax threshold). They’re not doing that, because they came to office with an undertaking not to increase personal tax rates. Taking the money directly from pensioners may be different from tax, but it ends up in the same place.
I’ve been more concerned by a set of ill-informed public comments about the WFP. Taking them one by one: why should rich pensioners get anything? The immediate answer to that is really simple. Pensions aren’t income-related. All pensions go to richer pensioners as well as poorer ones. I’ve already explained that the Winter Fuel Payment is not really tied either to winter or to fuel. The cut in WFP is nothing more, and nothing less, than a cut in pensions.
The second question: why can’t they just claim Pension Credit? To which the answer is: Have you looked at Pension Credit? It’s not as complicated as Universal Credit, which is a blessing, but it’s still difficult to decipher. (For example, entitlement is still expressed in weekly amounts, but pension payments are often monthly. It becomes more complicated if Savings Credit is included: at that point, it becomes difficult to work out when people become entitled, and when they cease to be.) Like other income-tested benefits, PC has consistently failed to reach hundreds of thousands of people who are in principle entitled. The last estimate (2022) was that PC was received by 63% of the people entitled, and not received by 37%.
That is also the answer to the third question: why don’t we just means-test WFP? The basic reason is again obvious. Every means-test calls for more details and more complexity. In their heyday, there were literally thousands of separate means-tests. (Consider, for example, the awful mess we’ve got into with local authority means-tests for residential care – but that at least relates to very large financial payments.) We already have one, comprehensive means-test for everyone with an income. It’s the tax system. Why create yet another complex, burdensome process to do the same job?
Means tests all fail to some degree. It’s far, far more difficult to work out who is entitled and who is not if the assessment relies on a test of income or other resources. That is not a reason never to have any means test, because considerable numbers of people depend on the payments – but we do need to decide whether it wouldn’t better to go for simpler, broader eligibility criteria for benefits with a mass role. I’d be in favour, for example, for a guaranteed minimum state pension, so that everyone who received a partial pension and had no occupational pension got the state pension automatically made up to a set level.
This blog is not, however, here to offer you a vision of the shining city of the future. If WFP is so feeble, why should we keep it? Does it matter? Here are three reasons.
First, the principle. The cut in WFP is a cut in pensions. Is that merited? Pensions in the UK are markedly lower than pensions in many of the countries we’d use as comparators – which is why the ‘triple lock’ has been used, however slowly, to bump them up a wee bit. WFP is another way.
Second, the value of having a distinct benefit. Benefits don’t work too well when they cover multiple contingencies. Technically, cash benefits are ‘fungible’ – they mix together in different ways for different people. The best and most effective way to be able to respond to particular circumstances is to have a stand-alone benefit that can be added to other income. That’s the mechanism that the government is set to destroy. WFP is the only system that is available to distribute benefits to everyone. If we wanted in the future to make a lump sum available to pensioners (and why not – we did it for the banks), this is the administrative mechanism you’d need to use. An old rule about tax: don’t burn your instruments. You never know when you’ll need them.
Third, the economics. WFP (and pensions overall) are not ‘public spending’. If they’re paid out of tax, the amount of money in the economy is just the same afterwards as it was before. Pensions are ‘transfer payments’, which mainly affect who is going to spend the money. The state does not spend the money; pensioners do. The abolition of WFP is, crudely put, a cut in the disposable income of pensioners. That is also a cut in the financing of economic activites that the money would otherwise have been spent on. Far too many people in the UK are destitute. Markets don’t work if people don’t have the money to spend in them. There is a powerful case for increasing benefits overall.