The parliamentary recess is over and the government faces their first big political storm over their plan to means-test Winter Fuel Allowance for pensioners. How they handle it may set the tone for the next five years.
The Winter Fuel Allowance was introduced by the Labour government in 1997 to reduce pensioner poverty. Historically, pensioners have been poorer than younger people. Fuel costs are a particular issue because pensioners are more likely to live in less insulated housing and are more likely to suffer from health problems if their homes are not well heated.
The allowance is a single annual payment of £200 a year for people over 65 and £300 for those over 80, paid in November to everyone receiving state pension. To ensure that nobody is left out, the benefit has been paid to everyone receiving the state pension, regardless of income.
Now the new government has decided that to save £1.4bn, and help fill the hole in the public finances, the allowance should be means-tested. If implemented, it will only be paid this year to people over 65 who are receiving Pension Credit or other means-tested benefits.
Protests
This decision has caused very widespread protest. The main objections have been summed up by the House of Lords Secondary Legislation Committee on the grounds of:
- impact on people entitled to, but not claiming, Pension Credit,
- the costings, given that an increase in take up of Pension Credit, as a result of a planned government campaign, may cancel out some, or all, of the planned savings,
- the increase in fuel costs following the raising of the energy price cap by Ofgem,
- using an emergency procedure to bypass the Social Security Advisory Committee which normally comments on such changes in advance of legislation.
There have been two parliamentary interventions to stop the change. In the Commons, a motion to block it has been signed by 29 MPs, mainly current or former Labour Members. As a result, the government has announced a Commons debate and vote, to take place on 10 September. At the same time, in the Lords, Baroness Altmann has submitted a motion which, if carried, would also block the change.
Why now?
The government budget in October may include all sorts of changes to tax and benefits. Logically, Winter Fuel Allowance is a part of that package which may include other plans to support poorer pensioners.
However, because the law requires that changes to this allowance must be made before 16 September, it was necessary to announce this particular change earlier. This has dramatically raised the profile of this policy, focusing on this decision in isolation, and creating a real political problem for the government.
Who is affected?
The plan is to withdraw the allowance from 9.3 million people who do not currently receive Pension Credit. It would continue to be paid to 1.5 million, perhaps more if the take-up of Pension Credit rises. Pension Credit guarantees a minimum income for all pensioners: currently £17,313 for a couple or £11,343 pa for single pensioners. The people most at risk are those whose income is just above that threshold.
Most pensioners are no longer poor
It used to be true that most pensioners were poor, but that picture has changed. Some pensioners are still poor, but it is no longer true for most. The median pensioner now earns around £20,000 p.a., compared to the median full-time employee who earns around £35,000 p.a. (the median is the point where half the people earn more and half earn less).
But their expenditure patterns are very different. Pensioners typically have fewer outgoings without commuting, childcare or mortgage costs. There are also great variations within the pensioner population. Older pensioners typically earn less than younger pensioners, and they are more likely to be single. And as a result of changes in pension systems over the last 40 years, some groups of pensioners have much better occupational pensions than others.
Pensioners have been getting richer
The level of the state pension is decided using the ‘triple lock’, which means it rises each year by the highest of the Consumer Price Index, average earnings, or 2.5%. This means that in almost all years, the state pension rises by more than average earnings. In the current year, the basic state pension rose nearly twice as fast as average earnings for working age people (8.5% versus 4.5%). So, the gap has been closing, and is now the narrowest since 1980.
Is it enough?
The more critical issue is whether pensioners have enough to live on. Every year the Living Wage Foundation publishes a Minimum Income Standard, calculated by Resolution Foundation, who carry out a survey, asking the general public what kinds and levels of services and goods people need for a decent minimum standard of living, and they then work out how much it costs to provide that. They do this separately for pensioners. They calculate that the Living Pension for a couple renting in social housing is currently £20,500 p.a., significantly above the Pension Credit threshold of £17,313 pa.
Conclusion
There is no question that, despite this proposed change, all pensioners will be better off next year, both in comparison to working-age people, and in absolute terms. Because of the triple lock, a single pensioner under 80, who will lose the £200 allowance, has seen their pension rise by £1,437 p.a. over the last two years. This will be true even for those who benefit least.
But the media have presented the government plan as a major blow to all pensioners, and there has been an understandably hostile reaction from the public. But most pensioners will either not miss the allowance, or will be keeping it. So, there is a good, rational case for the policy, especially with a campaign to improve take up of Pension Credit.
But politics is not always about reason. Governments can find themselves under great pressure to reverse entirely rational policies when public reaction rises. This issue is the first real test of nerve for a new government. How they handle it may set a tone for the next five years.
