Winter fuel payment could be taxed

Fuel-poor couple

A government committee has raised hackles among pensioner groups for suggesting that the winter fuel allowance should be made taxable.

Everyone over the age of 60 living in the UK is currently entitled to an annual payment of £250, increasing to £400 for the over-80s, to help meet the cost of heating their home during winter 2009/10. Because this payment is non-taxable, it does not impact any benefits you may receive and you don’t have to pay income tax on it.

However, in a new report into tackling fuel poverty, the Environment, Food and Rural Affairs Committee has suggested the winter fuel payment should not only be made taxable but also be stopped for people paying higher-rate tax. It says this would allow more money to be directed to those that need it most.

Michael Jack MP, chairman of the Committee, explains: “[The savings from such a move] should be aimed in the first instance at the fuel poor but then also for other vulnerable households - such as the disabled - with unusually high personal energy needs.”

Fuel poverty is defined as a household that spends more than 10% of its income on heating.

The Committee claims that just 12% of 2.9 million people who received the winter fuel payments in 2008-09 were classed as living in fuel poverty. Other fuel poor households did not qualify because of the age restrictions.

But Age Concern and Help the Aged say that making this payment taxable would have an adverse impact on pensioners. Michelle Mitchell, director of the two charities, says: “The government should be cautious about making the payment taxable as this will further  complicate an already complex system for older tax payers, many of whom only have modest incomes.”

Meanwhile, the proposal to stop higher-rate taxpayers being given help heating their homes has sparked criticism. The National Pensioners' Convention (NPC) warns that forcing people to apply for the payment, rather than receiving it automatically through their state pension or benefits, would dramatically reduce the number of people benefiting.

“It’s about time the politicians realised that means-testing and pensioners simply don’t mix,” says Dot Gibson, the NPC’s general secretary. “If it decides to means-test the winter fuel allowance we will see millions of older people stop claiming it.”

Around 20,000 pensioners die every year from cold-related illnesses, with 90% of excess winter deaths affecting the over 65s. The NPC is concerned that this will increase if the winter fuel allowance becomes a means-tested benefit.

“The most efficient way of getting help to the poorest in our society is not through some Victorian notion of having a deserving poor – but through universal schemes that give people support in a dignified way,” Gibson adds.

Mitchell, however, disagrees: “Ending payments to very well off older people in order to provide more help to the very poorest pensioners would certainly be a positive step towards tackling the fuel poverty crisis.”