Alex Clegg, economist at the Resolution Foundation, sets out a possible alternative to Winter Fuel Payments.
The announcement this summer that Winter Fuel Payments are to be restricted to recipients of Pension Credit or similar means-tested benefits has sparked considerable controversy.
The Government and its defenders point to the lack of sense, in these straitened times, of making fuel payments to all pensioners when the majority do not need them. Opponents highlight the number of low-income pensioners who do not claim (or even qualify) for Pension Credit, who are now set to lose much-needed support.
Universal Winter Fuel Payments are clearly an inefficient way to address the current reality of energy cost pressures in Britain. But concerns for vulnerable pensioners who are set to lose out are valid and, with the Government unlikely to reverse its decision, mitigations should be put in place this winter to soften the impact of the cut.
Crucially, increased support should not stop at pensioners. Last year, working-age households were almost twice as likely as pensioner households to be in fuel stress in England (defined as needing to spend more than 10% of household income on energy to have an adequate standard of warmth). This is even more stark for families with children: 56% of couples with children and a staggering 77% of lone parents were in fuel stress last year, compared to 24% of pensioner households. The fairer way to provide support for energy bills would therefore be to target all poorer families with high energy costs, regardless of age.
At the Resolution Foundation, we have looked at options for support that could be put in place for this winter. Viable options should target support based on both income and energy need. Support should also cost less than the pencilled-in savings from the Winter Fuel Payment restriction. This is tricky, however: most options utilising the benefit system cannot target directly based on energy need and do not cover the substantial number of poor households that, for whatever reason, do not receive benefits. Options to reduce bills directly in the energy sector cannot pinpoint who has a low income.
Our research has considered various alternative means for providing support, starting with reducing bills directly through energy bill support, cutting costs for families on pre-payment meters and expanding the Warm Home Discount scheme. But none of these options are up to scratch – they either fail to target low-income households or fail to reach low-income pensioners who aren’t eligible for means-tested support (the same problem that means-testing Winter Fuel Payments has created).
But our research shows that an expansion of the Cold Weather Payments scheme could provide a viable quick fix solution to support vulnerable households should Britain suffer a chilly winter. Extending eligibility and raising the temperature at which Cold Weather Payments are triggered is perhaps the most promising avenue, because it can target based on reasonable proxies for income and energy need. It could also replicate a cut-price version of the universalism lost in the Winter Fuel Payment cut, if eligibility were expanded to all recipients of the State Pension. This would mean all poor pensioners are covered, regardless of whether they claim benefits. You could even extend eligibility to low-income working-age families – who are most likely to suffer from fuel stress this winter – while still retaining savings from scaling back eligibility for Winter Fuel Payments.
Even this option, however, should be considered an imperfect, quick-fix method of getting support to households that are likely to struggle with energy bills this winter. In the long-term, the Government should set up an energy social tariff that can target support directly based on incomes and energy needs, rather than using proxies. This will take significant work on data matching, and it is thus too late to have something in place this winter, but the Government should start planning to have something up and running in 2025-26 to avoid the need for further quick-fix approaches to delivering energy support.
The Government is facing mounting opposition to its decision to restrict Winter Fuel Payments. But if the end result is a new support that reaches families in fuel stress across all age groups – that’s a policy solution that we can all rally behind.
