The Winter Fuel Payment: A Discussion Paper from a Scottish Perspective

The Scotland Bill at present passing through the UK Parliament could lead to the Winter Fuel Payment being devolved.  Currently, the Winter Fuel Payment (WFP) is set by the UK Government. How the WFP might change, if at all, on being devolved is as yet unknown. This briefing is therefore an overview of what the WFP is, election promises surrounding it from Scottish political parties and some of the recent discussions on the principle of universal benefits versus means-testing. This briefing aims to open up the way to further meaningful discussions on this topic.

What is the Winter Fuel Payment?

The Winter Fuel Allowance was introduced in 1997 to help older people meet the costs of heating their homes in winter. Today, the Winter Fuel Payment (WFP) is paid automatically as a lump sum each winter. It comes under the Regulated Social Fund with payments ranging from £100 to £300 made tax free to people of Pension Credit age.

In 2014-15 in Scotland 920,440 people received the Winter Fuel Payment. Of these 507,940 were women and 412,500 men. i

Some of the Issues

The WFP has been a hot topic of debate for some years. Given that it is a universal payment based on age, there is a significant part of the population that believes the WFP should be restricted to those who really need support with heating.   For example, the Scottish Government’s new Advisor on Poverty and Inequality, Naomi Eisenstadt, has made clear in interviews that she believes it is wrong that she should be entitled to the WFP.

Indeed, there have been moves to enable people who receive the WFP but feel they do not need it to give it to worthy causes. At one point, the Secretary of State for Work and Pensions, Iain Duncan Smith encouraged more well off pensioners who could afford their heating bills to return their WFP to the state.  Not everyone was keen to follow this advice and it was also not always easy to know how to hand the money back until in 2011 the government made it clear what the process was.

Local schemes in various parts of the country have also encouraged those that could do without the WFP to donate it to worthy causes. For example, Somerset Community Foundation and its Survive Winter campaign have asked people who can afford to go without their WFP donate it to the campaign. The money collected is then distributed among local charities that work to help isolated and vulnerable older people in the community.

The Current Position

As part of the Fairer Scotland conversations the Scottish Government has been having with the public over the new powers being devolved to Scotland, a paper was published on the future of social security delivery in Scotland. ii Evidence had been gathered from respondents which argued that:

“WFPs were not targeted in any way and there was no guarantee that eligible households will use the income to reduce fuel bills”.

The Scottish Government said in response that they were considering the eligibility criteria, that they were considering the possibility of converting the payments into a fuel bill rebate or using the funding to provide warmer, more affordable homes for people.

However, after a flurry of public outcry, the Scottish Government issued a news release promising not to “abolish, cut or means-test the winter fuel payment when it comes under Holyrood control”.

It later clarified that it had wanted to explore if it would be appropriate and effective to use WFPs as part of its aims to tackle fuel poverty and make homes warmer.

Election Promises

In its Election Special report last year, Energy Action Scotland iii asked the Scottish political parties what their plans were for the WFP. The Scottish Conservatives replied that they had committed to protecting the WFP for the duration of the next Parliament. The Scottish Green Party said the WFP should not be means-tested as they said to do so would undermine the universal principle of the benefit and that in the long-term this kind of payment would be replaced by the citizens’ income scheme. The Scottish Labour Party had decided to restrict receipt of the WFP for the richest 5% of UK pensioners, and with that cut, they thereby guaranteed no additional changes to the WFP for others. They also wanted to bring forward the payment date of the WFP each year to allow pensioners living in off gas grid areas, usually rural, to take advantage of cheaper domestic oil prices in the summer months. The Scottish Liberal Democrats said they would support the WFP for pensioners who were basic rate taxpayers but would withdraw eligibility from pensioners who pay tax at a higher rate. The Scottish National Party supported the retention of the WFP.

Research Surrounding the Winter Fuel Payment

Recent research has shown that for people struggling to pay their fuel bills, WFPs are helpful and are used for that purpose. For example, research carried out by the Institute of Fiscal Studies in 2012, which examined the impact on household fuel spending of receiving the payment, found that:

“An average of 41% of the value of winter fuel payments is spent on household fuel. The authors attribute this result to a ‘labelling effect’ whereby individuals respond to the name of the payment in deciding how they use the money.”

In a recent research article by Age UK, published in the Journal of Public Health, iv the researchers concluded that almost half of the reduction in excess winter deaths from 1999 to 2014 was attributable to WFPs.

Citizens’ Advice Scotland’s report, which used evidence from Citizens Advice Bureaux across Scotland, examines the issues but concludes:v On the issue of means-testing versus universalism we believe that the arguments made for greater targeting – or means-testing – of winter fuel and heating expenses payments are well made. However, we remain unconvinced that moving away from universal payments for eligible groups will ensure that everyone entitled to support (now and in the future) receives it. In addition to avoiding the known risks associated with selectivity, we believe a more universal approach within the target populations is the most effective and efficient means of achieving the desired outcome: maximising the incomes of low income and vulnerable households for help with their heating costs during the winter months. While this does mean that some households not on a low income will receive support, we suggest this is one of the many compromises required for decisions on social spending.”

A working paper was published last year on means-testing and universalism as part of the Joseph Rowntree Foundation’s Anti-Poverty Strategies for the UK. vi The authors explored the pros and cons of both universalism and targeting as theories. For means-testing, they felt that one of its main defects was the stigma it creates, that it leads to complex and invasive procedures which usually result in a low level of take up. They felt that inclusion/exclusion errors were inevitable and therefore the ‘truly needy’ were bound to be excluded from the schemes. They thought it a very costly procedure; the costs of administering means-testing would be much higher than the administration costs of universal programmes. They also referred to the individual’s potential of falling into the ‘poverty trap’ – since eligibility to means-tested payments and benefits depends on low income, the support is usually gradually withdrawn as the person’s income starts to grow.

The Jimmy Reid Foundation published a report in 2012 making the case for universalism:vii “If all of the available data is pulled together and the conclusions drawn, the historical and contemporary evidence strongly suggests that the appropriate response to austerity is to increase universal provision and so stimulate economic activity, equalise damaging wealth disparity and improve both government and wider economic efficiency.”

The authors also likened a move from universalism to selectivism (or means-testing) as follows: “where we find a move from universalism to selectivity we find privatisation and corporate profiteering, often at the expense of those least able to bear the impact”.

The Scottish Government’s Advisor on Poverty and Inequality, Naomi Eisenstadt, has also mentioned ‘proportionate universalism’ as a way forward.

The much-quoted Marmot Review on Reducing Health Inequalities defines this concept as follows: “To reduce the steepness of the social gradient in health, actions must be universal, but with a scale and intensity that is proportionate to the level of disadvantage. This is called proportionate universalism.”

Naomi Eisenstadt is concerned that Scotland “has gone too far with universal benefits” (BBC interview). She acknowledges in her report Shifting the Curve (January 2016) that one of the arguments for universalism is the stigma often associated with target services. However, in response she recommends better training for frontline staff in order to treat service users with dignity and respect.

The charity Independent Age puts forward taxing the WFP as a solution in their briefing For Richer, For Poorer. viii They suggest that the income tax system could be used to reduce the value of WFP for older people who pay income tax or just those paying the higher tax rate.

However, they highlight a potential flaw in this approach. “Means-testing winter fuel payments by income confronts a critical problem: cold-related illness and preventable winter deaths among older people are not associated with level of income, reflecting complex causal drivers, such as peoples’ behaviour and ‘fear of the heating switch’. As a result, targeting winter fuel payments by income could make these problems worse, potentially increasing costs to the NHS and directly increasing the number of preventable excess winter deaths”.

i Winter Fuel Payment: recipient and household figures 2014 to 2015, DWP, 2015

ii Creating a Fairer Scotland: Social Security The Story So Far and the Next Steps, Scottish Government, 2015

iii UK General Election 2015: Special Report on Fuel Poverty, EAS, 2015

iv Have winter fuel payments reduced excess winter mortality in England and Wales? Journal of Public Health, Age UK, 2014

v Designing a Social Security System for Scotland: Winter Fuel and Cold Weather Payments, CAS, 2015

vi Means-tested and Universal approaches to poverty: International evidence and how the UK compares – Dimitri Gugushvilli & Donald Hirsch, 2014

vii The Case for Universalism, The Jimmy Reid Foundation, 2012

viii For Richer, For Poorer briefing, Independent Age, 2015