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Monday, 19 November 2012

Gathering Winter Fuel Payments

I got my first Christmas Present today: my Winter Fuel Payment is on its way. I am over 60 and I live alone and on that basis I qualify for £200 tax free, before Christmas. Click on the image to read their gift message.

If you read this carefully and think about it a bit, it's quite easy to see that the whole thing is a dishonest scam.

First, ask yourself, when do the heaviest winter heating bills drop through the letter box? Well, my guess is end of March / beginning of April - the bill for the first quarter of the year. Alternatively, if you spend the winter on the Costa del Sol -  as very many older Brits do - there are no winter heating bills.

So why does the Pension Service stress that "We aim to make all payments by Christmas"? Answer: to help meet the cost of seasonal celebrations. If they said that in the first line of their letter, it would be more honest.

Second, they remind you that you don't have to pay income tax on this handout. Who is that good news for? Well, obviously, for higher rate taxpayers. A forty per cent payer would lose £40 quid if the £200 was taxable; a 20% payer only £20. Put another way, a forty percent payer would have to earn a pre-tax £333 to end up with £200 in the bank; a twenty percent payer would have to earn only £250.

So the Pension Service is giving more help to better off people than to worse off people.

Third, why is this a separate payment and not something incorporated into the State pension? After all, this Winter Fuel Payment requires a whole bureaucracy to itself, located it seems in Motherwell. Wouldn't it be more cost efficient to add £4 (or £5 since the income is taxable) to my weekly pension (currently on £117) than make this separate payment to me? And wouldn't that also automatically correct the regressiveness of the present tax-free handout system?

Perhaps so, says a Government voice, butt if we give these pensioners an extra few quid a week  they will squander it on booze and fags. Better keep it in the piggy bank for them until their winter heating bills come round. 

Er, but they don't come round until end of March. And giving it to them just before Christmas simply means bigger Christmas presents for the grandchildren - or a crate of booze for themselves.

But then there is another Government voice, but sotto voce. Two hundred quid tax free from the Government, just before Christmas. Thank'ee very much, Guv'nor. Yes, the Government wants you to feel gratitude and doff your cap - and if you haven't got a cap to doff, well, at least you can show your appreciation by Voting for Them at the next election.

Mr Gordon Brown has said that he is proud of his past role in finding Exchequer pennies to fund the Winter Fuel Payment. I have explained his motives in the paragraphs above.

But now ask, What would you actually do if you really wanted to help older and more vulnerable people with their heating costs?

There are several possibilities. Here are just two, neither of which need result in additional expenditure.

You could add the £4 or £5 per week to the State pension as indicated above. Since the State pension is taxable, this would not be a regressive approach. And you economise on bureaucratic overheads.

You could put the Winter Fuel Payment money into a fund which paid for loft insulation and double glazing in any house or flat which didn't have them and which was occupied by someone over 65 at the due date (I won't buy into the over 60 absurdity of the present scheme). It would be irrelevant whether the person benefitting was a home owner or a tenant, since the aim would be to "help meet the cost of winter heating bills" by the very effective means of helping reduce them. The contribution to costs could be 100% for anyone or it could be graduated according to income ( so, means tested).

The advantage of this approach is that you both help the elderly and contribute towards meeting Green energy targets. You are also doing something of benefit to all, not only in relation to emissions but in achieving improvement in the quality of the housing stock - which in much of the UK is dire. The young family who move into a deceased person's house benefit from the insulation and double glazing that was installed only a few years beforehand.

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