Chancellor U-turns on Winter Fuel Payment Eligibility
In a significant policy shift, Chancellor Rachel Reeves has largely reversed the controversial changes made to the Winter Fuel Payment (WFP) eligibility. In July 2024, one of her initial decisions as Chancellor was to restrict WFP entitlement in England and Wales exclusively to households where someone was claiming Pension Credit or specific other benefits. This move, which would have impacted almost 90% of pensioners aged 66 and over, was projected to save the Exchequer a substantial £1.5 billion.
Reinstated Eligibility Criteria
The revised eligibility criteria, announced in June, mean that for the upcoming winter, only pensioners in England and Wales with an annual income exceeding £35,000 (approximately two million individuals) will be ineligible for the WFP. To manage this, the government has adopted a method similar to the High Income Child Benefit Charge. If your income surpasses £35,000, you will either:
- Receive your WFP, which will then be reclaimed by HMRC through your PAYE code or self-assessment; or
- Submit a WFP opt-out request directly to the DWP.
- It’s important to note that the second option, opting out, may not be available in time for this winter, as the necessary DWP system is not yet in place.
Complexities and Anomalies of the New System
The decision to combine a household-based entitlement (WFP) with an individual-based tax system introduces further complexities, which have been addressed through a ‘sharing’ mechanism for the WFP.
‘Sharing’ the Winter Fuel Payment
For couples under 80 where only one spouse has an income exceeding £35,000, the lower-income spouse will be entitled to a WFP of £100 (half of the typical £200/£300 payment), while their partner will receive no entitlement. This ‘sharing’ approach, however, can lead to some anomalies. For instance, a couple with a combined income of £100,000, split 70/30, would still be entitled to 50% of the WFP. Conversely, a couple with a total income of £70,002, evenly divided, would receive no entitlement at all.
Financial Implications and Devolved Arrangements
The partial reinstatement of the WFP is estimated to cost the Treasury £1.25 billion, though the Chancellor has yet to detail how this will be funded. Had the £35,000 income cap not been introduced, the cost would have been an additional £450 million. Scotland and Northern Ireland manage their own devolved winter fuel arrangements, with Scotland having already indicated it will broadly follow the Chancellor’s revised approach.
Footnote: While the typical WFP amounts of £200/£300 may seem modest, it’s worth remembering that these figures were set in 2003/04. When adjusted for inflation, the actual value of the WFP today is nearly 80% higher.
