Dear Constituent,
I recognise the worry and anger that the announcement of this change by the Chancellor has caused. In this letter I will set out my own view about the change and also try to explain the wider financial context in which the government has taken the decision.
The Principle of Universal Benefits.
I believe that Universal Benefits are an important element of social cohesion. They avoid a two-tier society where some people see themselves as paying tax but not being treated equally in the benefits they receive. They also avoid others (mistakenly) feeling reluctant to claim the benefits to which they are entitled – often expressed as “I don’t want charity” -- when in fact it is their rightful due for all that they have contributed to the community.
Universality takes away this split and for that reason I prefer universal benefits as part of the “social glue” that makes for a coherent and harmonious society. It is also the case that the very process of means testing can be a costly and bureaucratic process and can sometimes undermine any perceived savings that come from limiting the number of people who are entitled to receive it.
Means Tested Benefits.
Whilst universality is the ideal, I recognise that successive reports dating back to 2009 have pointed out that the Winter Fuel Allowance is “poorly targeted” with only as little as 12% of recipients being thought to be “Fuel Poor”. That is why successive governments have examined the case for means testing. Indeed, many wealthier pensioners have questioned why they receive this benefit, saying they do not need it.
The current proposal is to pay the benefit only to those who are eligible for Pension Credit. In financial terms that means people whose income is less than £218.15 a week if you are single, or £332.95 if you live with a partner. (if your income is higher, you may still be eligible if you have a disability).
I am deeply concerned, however, that there are 880,000 pensioners who are eligible for Pension Credit but do not claim it. That is why I will be working with the local council and local organisations to ensure that those people do get the money they are entitled to.
The key problem with means tested benefits is the creation of a cliff edge, where those whose income is just a few pence above the threshold, lose out entirely on the benefit. This does seem manifestly unfair and I have suggested that there should be a taper system where those just over the threshold receive a diminishing benefit.
I am aware that the administration cost of a taper system can be very expensive and therefore reduces the amount of any projected savings. For this reason, I have supported the solution proposed by Martin Lewis: to make payments to those pensioners who live in housing council tax bands A to D. They are the ones who are likely to be amongst the poorest pensioners whilst those living in higher council tax bands are likely to be asset rich even if they are cash poor. It is not a perfect solution, but in a constrained financial position, I consider it a reasonable one.
The Current Financial Position
Each year the government sets a budget which sets out its spending commitments and allocates resources to each department. In doing so it has to identify where it will get its revenue from. After the General Election the new Labour administration discovered that the Conservatives had failed to identify where £22billion of that revenue was coming from. Had that failure been over the entire five years of the budget cycle, it might have been possible to make up that shortfall in future years by growing the economy and increasing revenue from the expanded tax base. It was not. It was a £22billion hole in THIS YEAR’s budget.
This means that the new government must find that money either by raising taxes or cutting services within the rest of this fiscal year. That is incredibly difficult to do. It is also why the announcement of the cut to the allowance had to be made early – in July, just after the new government came in – because the payments would normally start to go out around the time of the Chancellor’s Autumn Statement when other measures are likely to be introduced.
Impact of the Changes
Because we have committed to the triple lock to protect state pensions, the average rise in the Full State Pension from April this year is already £900.00 and the projection is for a further £460.00 rise next April. Energy bills are expected to rise by an average of £149.00, and the Chancellor has used these figures to claim that the impact upon pensioners of the loss of the Winter Fuel Allowance will be marginal. The Allowance is £200 per household or £300 if the pensioner is over 80.
Whilst that may be argued in relation to the Full State Pension, it is important to remember – as a constituent pointed out to me recently – that those who claimed their pension prior to 2016 do not receive the Full State Pension. They receive the Basic State Pension because they had the option to receive an Additional State Pension, the amount of which depended on the number of National Insurance Stamps you had paid whilst in work.
The amount of the Basic State Pension only rose by £691.00 in April and is only projected to rise by £353 in April 2025. Although that is still a significant rise of over £1,000.00 it still leaves the Basic State Pension at just over £9,000.00. It should also be said that these are, by definition, older pensioners, (men born before April 1951 and women born before 1953) and this cohort are therefore more likely to have been getting the £300.00 so their proportionate loss is greater if they have not claimed Pension Credit.
The government would point out that in 1978 these older pensioners were given a second, State Earnings Related Pension or SERPS which paid up to 25% of salary on top of the Basic Pension. These second pensions however, were only available to those in employment and many older pensioners were self-employed and therefore not able to access SERPS. For those who wished to “opt out” of SERPS they paid a reduced rate of NI at the time and had an amount put into a money purchase pension pot.
This confusing overlap of multiple pension systems means that whilst many of those older pensioners do have an additional second pension on top of their Basic State Pension, there are some who do not. These are likely to be older pensioners who are particularly vulnerable to the cold and may not have applied for Pension Credit. It is right that help should be targeted at those who are worst off.
Targeting
When the winter fuel payment was introduced in 1997, a higher percentage of pensioners than people of working age were in poverty. That is no longer the case. Given that half of pensioners have wealth of over half a million pounds I believe it would be wrong not to redirect the money freed up from their winter payments towards assisting the very poorest; both pensioners and others, who through disability or illness have particular heating needs.
The Secretary of State for Work and Pensions is also writing to 120,000 pensioner households who are in receipt of housing benefit but who are not yet claiming the pension credit that they are likely to be entitled to. This targeting of assistance to the most vulnerable is vital if we are to ensure the take up by all who need it.
The saving that the current change will make is projected to be £1.5 billion. On its own this will not solve the £21.9Billion budget deficit, but it will refocus a benefit that was widely seen as poorly targeted and, along with other measures, try to repair the damage to our society that was done by the irresponsibility of the previous government.
The critical point is that the combination of the state pension rising under the triple lock, with those in greatest need getting winter fuel payments alongside pension credit, not to mention the extension of the household support fund, which those in need can access through their local council, means that the fewer pensioners should be in distress this winter than last.
My Representations to the Chancellor
I have urged the Chancellor to look at three separate areas.
To increase the number of pensioners who claim Pension Credit through a nationwide campaign. I am pleased to say that since the announcement in July, the Government have received double the number of applications. I have asked that the campaign be as broad as possible, and run right through to the deadline for application on the 21st December.
To consider merging Pension Credit with Housing Benefit to simplify the system and ensure that pensioners who are already claiming Housing Benefit and most likely to be entitled to Pension Credit do not miss out.
To consider increasing the personal tax allowance for pensioners so that those pensioners who are just over the tax threshold do not find that they are having to pay very small amounts of tax on their marginal income (sums which are in themselves costly to administer).
There are two further points I wish to make
The responsibility for having to make these immediate snap changes lies with the Conservative government who left £21.9Billion of unfunded commitments in the budget for this financial year.
The combination of the state pension rising under the triple lock, with those in greatest need getting winter fuel payments alongside pension credit, and the extension of the household support fund, which those in need can access through their local council, means that the fewer pensioners should be in distress this winter than last.
Thank you once again for writing to me about this important matter.
Yours sincerely,
Barry Gardiner
Member of Parliament for Brent West