Born before 1953…here, have £300 for free…even go on a spending spree…
What’s the issue?
Currently the UK government offers a Winter Fuel Payment (WFP) for those born before January 5th 1953 (Age 63), receiving a state pension, housing benefit, council tax reduction, or child benefit. This can range from £100 – £300 and is not means tested. Statistics show that the immediate introduction of the WFP, reduced the number of excess winter deaths of over 65’s by 50%. Due to this payment usually given automatically and in the form of money, the WFP isn’t always fully used towards heating purposes.
This policy brief aims to provide an insight into the current policy and propose a reform to the WFP, that involves the full benefit being directly used for energy consumption, thus revealing its full potential. Progress Energy look to progress the policy into a more modern state benefit.
What’s the solution?
Energy Credits, given at the same value as the current payment. Energy firms would be responsible for collecting the credits and claiming the money back from the Government.
The Beatty et al. (2011) analysis of the WFP showed that actually naming the cash transfer with the words “Winter Fuel” instead of neutrally naming the payment, increased the recipient’s expenditure on fuel from £3 to £41. (Out of a £100 payment). Therefore, by actually giving the WFP as designated Energy Credits, this forces the recipient to use the benefit to its full potential and purpose.
- 59% – Still not directly being used on energy!
Pre – Existing Polices
|Warm Home Discount
|1.1 million of the poorest pensioners received £135 off their energy bill in winter 2013/14.
|Cold Weather Payment
|A means tested payment of £8.50 a week to £25 a week.
|These means tested benefits can be in addition to the WFP|
Let’s have a bit more detail on that solution…
Who would receive the benefit?
The standard age for the benefit would remain, as well as the criteria mentioned in the opening statement.
How would the system work?
Each qualified person would have their entitled amount held as Energy Credits with their energy supplier. The supplier would then have a list of those eligible, supplied by the government.
Instead of receiving the benefit as an annual cash transfer, those eligible would contact their energy supplier asking to use the credits WHEN and IF they needed them, throughout that given winter.
WHEN and IF?
At Progress Energy, we understand that the benefit is currently being given to those who might not even need it. For example, Sir Alan Sugar famously attempted to hand the money back, along with only 28 others in 2014/15. He actually failed to do so effectively and efficiently…could that mean there is someone getting fired!?
WHEN and IF continued…?
By creating Energy Credits, Progress Energy feels that this could allow the benefit to be used to its full potential. Rather than a lump sum payment, the benefit could be spread out across the winter, allowing recipients to use the Energy Credits WHEN needed. Giving the recipient a choice of when they used the credits.
- Energy Credits remove the WFP from being a Disposable Income for the recipient
- Allowing credits to be spread across the Winter, means that bills can be lower in times of need
- Since the introduction of the WFP, only 400 out of 12 Million have rejected the payment
Energy Credits keep the WFP a Universal Benefit
Why not means test the WFP?
A report from the Institute of Fiscal Studies in 2012 highlighted the effects of adding the WFP on to the pension credit scheme. Their results show that this would reduce the impact of of the labelling effect, mentioned above. Therefore, they concluded that this would not be the most socially optimal way to provide the benefit.
Imagine the scenario of means testing the WFP so that the top 5% of wealthiest pensioners do not receive this benefit – a proposal from Labour in 2014. Progress energy believe that this would unfairly discriminate against pensioners who have paid their fair share into the welfare state. Keeping the benefit universal would also reduce the administrative burden of means testing.
Let the benefit be used to its fuel potential
Let us Progress…
Furthermore, because those qualified would then have to actually contact their Energy Provider to receive their allocated credits when they are claimable, this could potentially reduce the number of claimants. Progress Energy believe that those most in need of the benefit would then have an incentive to contact their energy supplier. Those who perhaps have the means to heat their home sufficiently may not bother contacting to claim their credits. This technique is reversing the behavioural tool that states that people should be opted into something in order to encourage them. The Energy Credits remain a universal benefit, but to only those that ask for it. Think of this as a reversal of the auto – enrolment pension scheme.
What’s the gain for the Government?
The idea proposed directly above could reduce the number of claimants, hence reducing the burden on that famous Red Briefcase. With the process being passed onto the energy companies, the Government would only have to pay out what the energy companies claim back. Therefore, the administrative side of paying the benefit could be greatly reduced.
So that leads us to…Why would the energy companies bother to help?
At Progress Energy, we believe that this could ultimately lead to the increased final use of the benefit. Therefore, it is anticipated that the energy companies would see a rise in the actual amount of money they receive from the WFP. At the end of each winter, they would simply claim the value of the used credits back from the government.
In conclusion, this proposed reform to the WFP aims at making the full use of the benefit for the recipients. From the Governments point of view, all of the money goes towards its intended purpose, heating homes. From the energy companies point of view, they take on an extra service, but could potentially see a rise in the amount of money they receive from the benefit. Overall, Progress Energy believes that Energy Credits have the potential to transform the WFP into a more useful benefit that ultimately creates a more efficient welfare system.
|Circumstance||Born on or before 5 January 1953||Aged 80 or over in the qualifying week|
|You qualify and live alone (or none of the people you live with qualify)||£200||£300|
|You qualify and get one of the benefits listed*||£200||£300|
|You live with someone under 80 who also qualifies||£100||£200|
|You live with someone 80 or over who also qualifies||£100||£150|
|You qualify and live with your partner or civil partner and they get one of the benefits listed*||Nil**||Nil**|
|You qualify but live in a care home and don’t get one of the benefits listed*||£100||£150|
* Benefits: Pension Credit, income-based Jobseeker’s Allowance (JSA), income-related Employment and Support Allowance (ESA)
** Your partner getting the benefit will get the Winter Fuel Payment on your behalf
- Institute of Fiscal Studies – 18 October 2010; Thomas Crossley and Cormac O’Dea – How to keep warm in winter: winter fuel payments or cold weather payments?
- https://www.gov.uk/government/collections/winter-fuel-payments-caseload-and-household-figures – UK Government Statistics for WFP – Inc. Historic tables.
- http://www.bbc.co.uk/news/uk-scotland-scotland-politics-34517896 – BBC News – Means Testing WFP – 13 October 2015.