When the Chancellor Rachel Reeves announced that she was withdrawing the Winter Fuel Payment from most pensioners on the same day, last July, when she awarded fat pay rises to many public sector workers she perhaps imagined herself as striking a blow for inter-generational fairness. Working people would get more money – at least if they worked in the public sector – and wealthy retirees a little less. Yet it is fast becoming the an issue which could prove her undoing.
The tragedy of the Winter Fuel Payment fiasco is that it leaves the far bigger problem untouched
We now learn that the government’s partial U-turn will involve pensioners effectively being means-tested. All would receive the benefit initially, but any pensioner household with income above the average UK level of around £37,000 would have the money clawed back through their taxes. It would work rather like child benefit, which used to be universal but is now snatched back from higher-earning couples.
Under the plans, around two thirds of pensioners would continue to receive Winter Fuel Payment. Pensions minister Torsten Bell says the government is keen to avoid the money going to millionaires. But, as with so many fiscally-complicated wheezes, the plans come with problems. This scheme creates yet another critical threshold where taxpayers will, perversely, end up worse off if their income is a little higher. The tax system is now riddled with these thresholds – such as the withdrawal of free childcare from households where one person earns more than £100,000 a year. It will inevitably end up causing confusion among many pensioners. And it will lead to stories of some being hit with unexpected bills as the money is reclaimed. You have to wonder whether it will be worthwhile for the government to seek to restrict the Winter Fuel Payment in this way, when most pensioners will get it anyway.
The tragedy of the Winter Fuel Payment fiasco is that it leaves the far bigger problem untouched: the triple lock. The commitment to increase the state pension each year by inflation, average earnings or 2 per cent – whichever is higher – is a bomb which has been planted beneath the public finances. In 2023/24, the basic state pension paid out £156.20 a week. Had it risen with the Consumer Prices Index (CPI) since the triple lock was introduced in 2011/12 it would have been £140.90 a week. Had it risen with average earnings it would have been £141.20. Thus the state pension is nearly £800 a year higher than it would have been under either of the main alternative methods for uprating it. To put it another way, the triple lock is already costing taxpayers nearly three times as much as is the Winter Fuel Payment. Over the years, as its effect is compounded, the cost of the triple lock will mushroom further. Yet no government seems brave enough to tackle it.
There is another point to be made here: the Winter Fuel Payment would have been less likely to become a tortuous issue for the government had it not been for sky-high energy prices. If we didn’t have among the highest electricity prices in the world, pensioners wouldn’t feel in such need of a £200-£300 annual payment towards their bills.
Why do we have such high electricity prices? Sorry, but that comes back to Net Zero policies. As we discovered this morning, for example, consumers have already paid £500 million in ‘constraint payments’ to compensate wind farm owners for when the power they generate cannot be used. Using gas power in short bursts to make up for lulls in wind and solar is far more expensive than using it continuously; indeed, the United States, which generates more of its power from gas, has domestic electricity prices less than half ours. As for gas prices, they might well have been markedly lower by now had the last two governments embraced fracking rather than banned it. The fuss over the Winter Fuel Payment is a proxy for a very much bigger failure of government policy.
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