UK considers taxing pensioners to claw back winter fuel payment

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The contentious winter fuel payment could be restored to all pensioners under plans being considered by Downing Street, with the sum being recouped from higher income pensioners through their tax returns.

Government officials confirmed the idea is being looked at after Sir Keir Starmer this week announced a U-turn on last year’s decision to scrap the benefit for all pensioners, limiting it to those already in receipt of pension credit.

Starmer said last week he wanted more pensioners to receive the payment after about 10mn were stripped of the benefit last winter, a reversal of a policy that proved highly unpopular with voters in this month’s English local elections.

But Downing Street said that it was still looking at how and when this might happen and that final decisions would be taken at “a fiscal event” — expected to be this autumn’s Budget.

Creating a new means test for the winter fuel payment would be highly complex and ministers are considering a simpler option, the officials said, which is restoring it as a universal benefit and then recouping the money when high income pensioners fill in their tax returns.

“There are a number of options being considered and that is one of them,” said one official close to the discussions. The payment is worth either £200 or £300 a year per recipient.

A similar approach was taken by former Tory chancellor George Osborne when he reduced the eligibility to child benefit for better off parents and it was this week endorsed by former Labour shadow chancellor Ed Balls.

“What they should do is a big U turn — just say, we’re going to restore the winter fuel allowance to everyone and then withdraw it through the tax system from the highest-income pensioners,” Balls said.

Speaking on the Political Currency podcast, which he co-hosts with Osborne, Balls told the former Tory chancellor; “That’s what you did with child benefit — and you can do that because the higher income pensioners will be doing their tax return, you have got their income information.”

The winter fuel payment cuts were announced by chancellor Rachel Reeves last July, just weeks after the general election, and limited the benefit in England and Wales to pensioners who receive means-tested pensions credit.

The reforms removed the benefit from people with incomes of more than £11,800 a year or £18,000 for a couple. Analysts said widening the eligibility for the payments would be complex, because there was no simple way to identify households with income just above the cut-off for pensions credit.

Modelling access to the winter fuel payment on the way child benefit has been withdrawn from higher earners would not be without problems, analysts said.

The high-income child benefit charge (HICBC), which child benefit recipients pay if their income goes past a certain threshold, has proved controversial since its introduction in 2010 and has resulted in several high-profile cases at the tax tribunal against the levy.

Emma Rawson, director of public policy at the Association of Taxation Technicians, said the government would be “unwise” to use the HICBC as a model for restricting access to winter fuel payment, adding there were many outstanding problems with the policy.

Not all higher income pensioners need to fill in a self-assessment tax return, as Balls had suggested, she added, only those who have additional income to pay or capital gains to report.