Cold Comfort – Labour’s relationship with means testing
Background
Just weeks after Labour’s historic election victory, the government finds itself embroiled in an unnecessary and damaging row over welfare benefits. Towards the end of July, the Chancellor made a shock announcement that she would be means testing the winter fuel payment (WFP) from the Autumn as a way of funding the financial chasm of £22bn left by the Tories. But the figures and the arguments don’t add up.
The WFP was first introduced by the then Chancellor, Gordon Brown in 1997 in recognition of rising energy costs faced by millions of pensioners on a fixed income. The current allowance is £200 per household and £300 where someone is over 80 and this figure hasn’t kept pace with rising bills for years.
The latest figures from Friends of the Earth show that 40% of those spending more than 10% of their income on their fuel bills are over the age of 65.1 This equates to around 1.28m older households suffering from fuel poverty. The latest excess winter death figures for 2023 also reveal that 10,890 people died from cold related illnesses; the vast majority of whom were pensioners. (2)
The problems with means-testing
Successive governments have struggled with persuading sufficient numbers of eligible individuals to claim Pension Credit. The latest figures show that only 63% of pensioners are in receipt of the benefit. Even in its best performing year, take-up only ever reached 67%. A decision to therefore link future payment of the WFP to Pension Credit will exclude around 1.2m older people from this support – as these are those who are on a low income, but who don’t currently claim. These remain some of the poorest pensioners in the country. Despite all governments running take-up campaigns, none have been able to shift the dial on this issue. This means that currently around £2.1bn in payments remains unclaimed. (3)
Three cheers for universalism
Benefits that are only for those who are the poorest in society, pretty quickly become poor benefits. The welfare state works because everyone who can, contributes and everyone who is eligible draws from it. Those with higher incomes need to ideologically and practically support the idea of higher taxation and redistribution to give our welfare state its legitimacy. One of the key ways in retaining this support is by ensuring that they too are eligible for some of its benefits.
There is also a huge amount of evidence to show that means testing a benefit costs around ten times as much to administer than something that is paid universally. It also requires an army of civil servants to determine who is eligible. What often stops a universal approach is the argument that better off pensioners simply don’t need their benefits, but the most efficient way of tackling this issue is through the taxation system. This way, everyone who needs support gets it without the stigma of applying for it and those who don’t need it can be taxed accordingly.
What means testing the WFP means
The current proposal to link eligibility for the WFP with entitlement to Pension Credit is said to raise £1.5bn, but there are a number of serious drawbacks to the proposal:
It did not appear in the election manifesto and now looks like Labour deliberately kept it secret so as not to deter older voters from giving us their support. There is considerable evidence to show that Labour continues to lag behind the Conservatives when it comes to support from the over 65s and this proposal will do very little to change that position.
The proposal has been opposed by almost every organisation in the age sector, representing the vast majority of the country’s 11.6m older people. One petition opposing the change has already reached nearly half a million signatures.
The threshold of linking the WFP to Pension Credit means that those pensioners with a weekly income above £218.15 (single) or £332.95 (couple) will miss out. In effect this means that individuals on very modest incomes just above £11,343.80 a year will be excluded. By the time their energy bills have been taken into account, they will end up being financially worse off than those on Pension Credit. This will create a sub-class of older people who will effectively be among the very poorest in society.
There is a genuine concern that cutting back on the WFP may also lead to increased government spending in the long-term. Evidence shows that increasing older people’s incomes reduces pressure on the NHS and social care system – and likewise, those with lower incomes are more greatly affected by poorer health and the associated costs.
Labelling a benefit as a fuel payment is shown to actually encourage people to spend it in that way. All too often there are anecdotal stories about better off pensioners using the money to buy crates of claret – but these are spurious arguments.
The actual amount that is likely to be raised from this measure is highly questionable. Given that the government is committed to increasing take-up, this could mean that the £1.5bn proposed saving would be entirely wiped out if a take-up campaign were successful. More realistic, is that the campaign improves some take-up but doesn’t actually produce any noticeable savings. This clearly raises the question as to whether the move away from universalism is therefore more fundamental and ideological, than simply economic. Labour’s support for universalism therefore needs renewal rather than rejection.
There is a concern that the genuine need for savings or additional income raising does not appear to be aimed at those who can best shoulder the burden. Labour needs to show what alternative proposals have been considered before arriving at the decision to means test pensioners. For example, what role are big energy companies and others being asked to play in helping out financially?
The decision to introduce this change in October/November gives very little time for older people to adjust their household spending, with fuel bills now expected to reach £1717 this winter for an average household.
What next?
There are some immediate mitigations that could be considered:
1. Extending eligibility for the WFP to those on Housing Benefit, given that this group is on a low income and there are higher rates of poverty amongst older renters, would at least in the short-term provide some much-needed additional support. Having an automatic link to those claiming Attendance Allowance could also be used, given that we know that living with a long-term disability is often financially challenging.
2. Introducing a social tariff which is inclusive of older people to ensure energy companies take more responsibility to meet the needs of their older customers. Given that many older people find it more difficult to keep warm, they will inevitably be high energy users and the probability of experiencing comorbidities increases with age. We also need to acknowledge that there is a geographical factor to this issue as well, as people in the north do experience colder temperatures and housing may in certain areas be without proper gas or electricity supplies.
3. Setting the eligibility for the winter fuel payment at a much higher level, such as the higher rate tax threshold of 40%. The advantage of this is that we already know who these people are and how to contact them.
However, the most practical solution would be to delay the introduction of this proposal so that further investigation can be done into the issue. We need to see an impact assessment and fully understand that making such a quick change to people’s incomes will have a significant and detrimental effect. The government has rightly introduced a task force to look at the issue of child poverty before making any decisions on welfare spending.
This same approach should be taken in relation to the WFP and its impact on the older population before it’s too late.
Notes
1. https://policy.friendsoftheearth.uk/insight/whos-impacted-fuel-poverty-2023
2. Excess mortality within England: 2023 data - statistical commentary - GOV.UK (www.gov.uk)
3. What is Pension Credit and the eligibility criteria? – Money Saving Expert