Means-testing winter fuel payments to pay for Dilnot's social care plans sounds like a no-brainer. Actually it would be a seriously regressive move
A coalition of Liberal Democrats – the think tank CentreForum and the former Liberal Democrat Care Minister Paul Burstow - have called for the means testing of Winter Fuel Payments via the Pension Credit system, with the money released directed to fund the ‘capped cost’ model put forward by the Dilnot Commission on long-term care.
On the surface, the logic appears faultless. Unfortunately, it’s not so simple.
The first issue is where will the money go to? If it is just to fund the extra cost of the Dilnot Commission’s ‘capped cost’ model, this still leaves the gap in baseline spending on social care in England, which is generally estimated to be at least £1 billion per annum. However, trying to implement the Dilnot proposals without addressing this baseline gap would be like to trying to construct a house in mid-air. Councils would – quite correctly – use any extra money received to prop up baseline levels of support. And because of demographic pressures, the cost of maintaining the current system and closing the ‘baseline gap’ will grow each year.
But the Lib Dem proposal contains an even more glaring fault-line and it is one that makes their announcement look awfully regressive.
This is because of the idea that Winter Fuel Payments should be means tested via the Pension Credit system - the cash ‘income top-up’ for the poorest pensioners. In short, the proposal is that Winter Fuel Payments should only be paid to those pensioners who receive Pension Credit - which is around 2.6 million people – with the money released contributing to the cost of implementing the ‘capped cost’ model.
The trouble is that despite the best efforts of the Department for Work and Pensions to improve take-up, there are still 1.3 million pensioners who should receive Pension Credit but don’t, for a complex range of reasons. So that’s 1.3 million pensioners scraping by on the State Pension of £107 per week who would be set to lose their annual Winter Fuel Payment of £200.
What makes the proposal regressive is that according to the Dilnot Commission’s own figures, well over half of the cost of their proposals goes to the wealthiest 60% of older people.
So the effect of this Lib Dem proposal is to take money from the poorest 1.3 million pensioners in England and give it to the wealthiest. This is awkward for a party that trumpets fairness as its touchstone.
There are in fact lots of ways in which expenditure on Winter Fuel Payments could be trimmed: raising the age of entitlement to the State Pension Age; making it liable for income tax; or, just not paying it at all to the 15% of pensioners who pay income tax.
In order to find money for the care system, the Lib Dems may want to explore all of these as well. But they should also reflect on the fact that Winter Fuel Payments do get spent on fuel, and that there are still around 24,000 deaths among pensioners each year because of the cold. In fact, fuel poverty among older people is set to escalate in coming decades, and Age UK estimates that the cost the NHS each year of cold-related conditions each older people in England is £1.36 billion.
So, public spending on Winter Fuel Payments really isn’t just sitting there waiting to be scooped up to be spent on protecting the asset wealth of older people in the care system. Rather than jumping on the means testing bandwagon, a more effective approach would be to work out what money is needed to properly address fuel poverty and ‘excess winter deaths’, and then use anything leftover for the care system.
Besides, if the Lib Dem plan for a single-tier state pension is announced as expected in the ‘mid-term review’, the government will anyway be calling time on the pension credit system and its broken means testing infrastructure. However, the fact that the Winter Fuel Payment does get spent on fuel, unlike increases in the State Pension, means there is a strong case for retaining it even under this scenario.
The irony is that in their longstanding campaign for a ‘mansion tax’, the Lib Dems have a noble record in saying the unsayable on wealth taxes. Indeed, the real money to be found for the care system lies in the billions of pounds of unearned, untaxed property wealth that some in the older generation have accrued, and which became the focus of the last Labour government when it tried to get a grip on long-term care funding. Directing this into the care system through any number of potential options would be a genuinely progressive proposal for the Lib Dems to push.
James Lloyd is director of the Strategic Society Centre.
