Labour is considering reinstating the winter fuel payment for thousands of pensioners in a move to restore public goodwill, according to reports.
Senior figures in Sir Keir Starmer’s circles have reportedly been discussing how to handle anger over the policy in the wake of last week’s election losses to Reform UK.
Chancellor Rachel Reeves decided to scrap universal winter fuel payments last July, with only those in receipt of pension credit or other means-tested benefits being able to claim the allowance, worth between £200 and £300.
While a full reversal of the cut is not expected, Downing Street sources said they were considering whether to increase the threshold over which pensioners are no longer eligible for the allowance.
MPs have been piling pressure on the Government to change its mind over the winter fuel payment, as well as its plans for £5bn benefit cuts, before a vote on “stage one” of its welfare plans in early June.
The Government is planning to come back for “stage two” this autumn, but in what ways could they change winter fuel payments, and how much would each potential change cost? Here, The i Paper takes a look.
Labour is reportedly exploring the option of increasing the income cap, which is currently set for the payment. Pensioners only get the fuel payments if they get pension credit, requiring them to have an income of roughly less than £11,500.
Sir Steve Webb, former pensions minister and partner at LCP, said this could be a good option because it looks like much less of a climbdown than replacing it with something completely different.
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But he did say that it could cause several problems. He said: “You’d probably get a big issue of non-take-up if you created a whole new system for people who aren’t actually on any benefit but are just a few pounds above the pension credit line.”
Rachael Griffin, personal tax expert at Quilter, said the exact cost of this adjustment would depend on the new threshold set and the number of additional claimants.
She explained: “The Government first projected that the changes to the winter fuel payment would save £1.4bn in 2024/25, rising to £1.5bn in 2025/26.
“Taking what would be a relatively small hit to Government coffers may be viewed as a necessary step to address the concerns of older people.”
Cuts to the winter fuel payment are thought to have played a key role in Nigel Farage’s Reform UK winning the Runcorn and Helsby by-election last week (Photo by OLI SCARFF/AFP via Getty Images)2. Restrict those on lower council tax bands
In recent years, the Government has sought to assist households with the rising cost of living and, in some cases, has chosen to target those payments on those likely to be most in need.
One example was the £150 council tax rebate paid in 2022/23, which was paid only to those living in homes in council tax bands A-D, the four bands for those living in the lowest value homes.
Previous research by LCP found that low income rates tend to be highest amongst pensioners living in properties with the lowest council tax bands.
In the UK, out of 1.9 million pensioners living on a low income, around 1.6 million, or roughly four in five, are living in a property band A-D.
The only losers would be those in band E or above, which is just over 300,000 individuals.
If this happened, winter fuel payments would continue to be made to around 8.3 million pensioners in total, Sir Steve said, and as a result, the savings would fall from around £1.4bn with the Government’s current policy to around £500m.
Another potential way of targeting winter fuel payments would be according to age.
There is already a system in place where higher payments are made to older pensioners, and there are some other aspects of the system, such as free TV licences to over-75s on pension credit, where age is used as a proxy for greater need.
However, there are downsides to this, too.
A previous LCP report said: “Although around 600,000 are aged 80 or over and perhaps might better fit the stereotype of spending more time at home with the heating on, the majority of poorer pensioners are not elderly.
“This means that any policy to restrict payments only to the oldest pensioners could risk excluding the majority of poor pensioners.”
4. Remove from higher-rate taxpayers, or subject it to tax
The state pension is subject to income tax, paid at 20 per cent above the £12,570 threshold, but winter fuel payments are not.
One option would be to reinstate the winter fuel payments for everyone, but subject them to tax. This would create some problems as the payments are made per household, but tax is levied at the individual level.
“In principle, in cases where there are two pensioners in a household, they could each be taxed on half of the total figure,” according to an LCP report.
Another option could be to give the payments to basic rate taxpayers, but not those paying the higher-rate of tax, which starts when income is above £50,270.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “If ensuring the wealthiest aren’t receiving the payment is the biggest motivation for the cut, then it could be withdrawn for higher-rate taxpayers, ensuring at least basic rate taxpayers receive the benefit in full.”
This would eat away at a large majority of the Government’s savings, as only a minority of pensioners pay the higher rate of tax.
The DWP has been contacted for comment.
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