Friday 4 January 2013

Abolish the fuel allowance

I've never been entirely convinced about the winter fuel allowance. It was good politics at the time, but always looked like a bit of a gimmick. If the government felt that pensions were inadequate to cover fuel costs, why not simply increase the level of pensions, instead of introducing a stand-alone, separately administered benefit?

There's also something rather patronising about the assumption that most or all pensioners are unable to manage their budgets to cover higher winter fuel costs, and therefore the government has to do the managing for them by paying the allowance at the time it is needed. Whilst there are some pensioners who could do with help in financial management, there are many more who are perfectly capable of budgeting for the expenditure, and who would prefer not to have the government micro-managing their income to match their costs.

The status of the allowance as a non-taxable addition to income also marks it out as a target – it means that it gets paid to millionaires and paupers alike, but with no clawback through the tax system for the better-off. It encourages those politicians who've never really been convinced about the idea of the welfare state (and, surprisingly, there seem to be some of those in all parties) to see it as an extra, a bonus, rather than as an integral part of the pension.

It's a soft target for those like Lib Dem MP Paul Burstow who want to roll back the benefits system and impose means testing, and it's a hard benefit to defend in terms of cold hard logic, despite being rather popular amongst its recipients (which is why it was such good politics).

But my preference would be to reduce the number of add-on benefits like this, and simply pay a proper, higher pension in the first place, and let the tax system take care of the fact that some people don't 'need' the whole payment. Those who need it most would still effectively receive it tax-free anyway; and those who need help budgeting could be provided that help in line with their needs. I suspect that there are plenty who understand the logic, but are too afraid of the political fallout to follow through.


Welsh not British said...

And yet if energy was devolved and nationalised we wouldn't need any fuel allowances.

Anonymous said...

Those who do rely on the state pension as all, or most of their income, usually have two basic costs - food and fuel.

It is only the cost of energy consumed which always doubles in cost in winter. What you are saying, John, is that the winter fuel allowance could be 'evened out' across the year, and that by proper financial planning when the pensioner pays a gas or electricity bill in summer, then he/she should bank an equivalent amount, to cover this cost that will inevitably be incurred in winter. It's true that many pensioners can do this, but not all, and life is not that simple. There's always the unexpected cost such as something need doing to the home or a family cost that comes 'out of the blue'. It is for this reason, it is safer to pay a benefit when it is needed.

There is no claw back through the tax system because winter fuel allowance is a non-taxable income. The solution is obvious. Make is taxable. It would not effect a pensioner with income up to £10k, but it would be progressively taxed in higher income pensioners, 20%, and the 40%. But as you say the ConDems in Westminster have abolished the 50% tax rate for those millionaires you mention, some of whom are pensioners.

My personal experience is that I did buy a house from an old person. The fuel bill was high. In the first year I insulated the loft, second year filled double glazing, and subsequently upgraded an immersion heater and installed 'intelligent storage heating, and even something as simple as a new kettle which shows how many cups you boil. All this is a 'capital' investment which is often beyond the reach of many pensioners, it did however reduce my energy bill by 2/3rds, and removed the winter 'peak' of energy bills.

I therefore suggest that the 'winter fuel allowance' budget be devolved, and that a more innovative distribution of at least part of this benefit could be done. This would not only help pensioners, it would upgrade our housing stock, and reduce energy consumption, while at the same time cushion those poorest pensioners with winter bill problems.

John Dixon said...

Welsh not British,

"if energy was devolved and nationalised we wouldn't need any fuel allowances"

That looks like an unwarranted straight line from a dubious premiss all the way across to an unsubstantiated conclusion to me. I don't think that it's anything like as simple or straightforward as that.

John Dixon said...


I think you may be opening a rather large can of worms with the statement that "it is safer to pay a benefit when it is needed". Where do you draw the line? At the extreme end, why not let the government keep all the money and just pay the bills as and when they arrive? No, I'm not suggesting that, and I accept that it's a case of reductio ad absurdam; but there is a serious point about the extent to which we take away people's responsibility for managing their own finances just because the income comes through benefits rather than earnings.

When people reach the age of 65, they don't suddenly become incapable of managing their total finances over a year to the extent that the state needs to step in and start doing it for them. (By the same token, there seem to be quite a few under 65 who could do with a bit of help!) I think there's a widely held view that the best way to give people a long and happy retirement is to keep them as independent as possible, with targetted support when needed; and I see budgetary assistance as being in that category. Some might need help when they turn 60; others might not need it until they're in their nineties. You seem to be saying that we should assume that they all need to have the state start managing their income flow from 65 on.

I'm simply arguing that it's better in principle (and probably cheaper for the state to manage) to pay people an adequate total pension in the first place, to make that income subject to income tax above the tax-free earnings level so that the better-off see some of it clawed back, and to give people maximum responsibility for managing their own finances within that, with targetted support where necessary.

However, I entirely accept your point that the issue isn't just about fuel bills; it's about using fuel efficiently as well, and there is a strong case for a programme aimed at upgrading the housing stock in Wales. I don't think we should confuse that with the 'benefits' system though.

Welsh not British said...

At present we are subsidising England with our energy many times over.

First we are generating the power and allowing them to take it.

Second we are paying more for our energy than they are paying for our energy.

Third we are subsidising the green energy gang, who are mainly English land owners or the Crown.

Take all that away, make it so that what energy we do export is more expensive than it is here and you not only reduce the cost of living for people here. But you also make it so that companies will have to come here to save money.

By nationalising you also remove the layer of cream for the fat cats.

Also, I'd scrap the fuel allowance for old people and instead make it available to anyone who qualifies and being in fuel poverty. Those are the ones that need the allowance.

Anonymous said...

"there is a strong case for a programme aimed at upgrading the housing stock in Wales"

9 years ago, there was a grant scheme in Wales, available to over-60s to improve their heating - has this been ended?

Cibwr said...

Payments can be equalised throughout the year to the energy companies, if not via direct debits by payment schemes via magnetic cards at paypoints. There is no need for anyone to face higher winter bill payments and lower summer bill payments.

Nationalisation has many benefits - radically smaller bills is not one of them. The profit for the energy companies is about 5% of the customer's bills.

If we hypothicate part of pensions why not the rest? American style food stamps?

John Dixon said...

Welsh not British,

"We" are generating the power and allowing "them" to take it? No; multinational companies are generating power in Wales, and are selling it to those who need electricity. To express that relationship in terms of "Welsh" and "English" is to miss the point.

"We are subsidising the green energy gang"? We are also subsidising the nuclear power gang, the coal power gang, and the gas power gang - it's just not so obvious.

"make it so that energy we export is more expensive than it is here" would run into a few little problems under EU competition rules, but even disregarding those, if the differential is high, the multinationals will simply buy their supplies elsewhere. The extent to which there can be a price differential is, in practice, rather limited.

On the question of profits and fat cats, Cibwr makes the very valid point that while profits may look high when you look at the actual numbers, abolition of profit wouldn't actually make that much difference to bills.

Having said all that, I actually don't disagree with your basic point that having local control and ownership of energy policy and production would enable Wales to make more profitable use of its natural resources. It's just that I don't think that the consequences of that are quite as sweeping and transformational as you seem to believe.

Welsh not British said...

"It's just that I don't think that the consequences of that are quite as sweeping and transformational as you seem to believe."

On it's own perhaps, but combined with our water, our land, our taxes, our mineral resources etc the changes would be large and consequential.

Anonymous said...

Cibwr has a point about 'direct debits' balancing the cost throughout the year, but there lies a problem. The point I make about 'paid when it's needed' is not because the over 65s cannot budget, it's because old people die, or are widowed. Have had cases where once the pensioner has passed away, the electricity or gas company end up writing a cheque for refund of accumulated (possibly summer) overpayments out to the executors of the will. This is unacceptable. It's mo good dying of cold while in credit. It's also a worry for many pensioners in fuel poverty, hence the timing of the payment is important, for the piece of mind of the recipient.

Cibwr said...

There is also the Warm Homes Discount paid to anyone in fuel poverty (whose household income is less than about £16,000 and spends 10% or more on fuel). This is £130 a year paid onto the electricity account - the money from this doesn't come from the government but from the energy companies and is paid for via everyone's bill. So we already have some support for people in fuel poverty.

There is also the Welsh Government Scheme Nest

If your home is rated g or f for energy efficiency you can get insulation and a new boiler.

John Dixon said...


"'s because old people die, or are widowed ... once the pensioner has passed away, the electricity or gas company end up writing a cheque for refund of accumulated (possibly summer) overpayments out to the executors of the will."

Undeniable, of course. But dying of cold, dying during the summer months, and dying with a surplus on the energy accounts - none of these are things which apply only to over 65's, and neither do they suddenly increase in probability on people's 65th birthday. The mortality rate increases gradually rather than suddenly - what's magic about a 65th birthday which means that something which was, apparently, acceptable the day before becomes unacceptable?

Glyndo said...

I think you'll find that this is actually an Xmas presents payment, no matter what the Government calls it. Many pensioners use it for that purpose and good luck to them.
Welsh not Brtish - If you're Welsh you're British. Hint, it's a geographical term.

G Horton-Jones said...

Given that domestic fuels are subject to Vat then this payment is at best a tax refund. However the winter fuel allowance in some cases is less than the VAT paid on the fuel costs of certain individuals ie elderly house bound for example

Direct debits are a nightmare unless your consumption remains the same on a daily basis throughout the entire year- you will find that you build up massive credits ( on which the supplier is earning interest ) and requests to review your payments are resisted or token reductions are offered - Switching merely puts you back in the same game

Cibwr said...

Dealing with direct debit inquiries day in day out I can say that as long as I have an up to date meter reading I will always refund in full when asked - though I would point out that in doing so it would impact the amount of direct debit people pay. Secondly because of the nature of gas most people are in debit for most of the year, rather than in credit - the energy companies do not charge interest on the debt.