Winter fuel U-turn leaves SNP with some tough choices

The Herald Scotland

a day ago

Rachel Reeves's reversal on the Winter Fuel Payment presents a tricky choice for the Scottish Government.
In what the Chancellor insisted was not a U-turn, around three-quarters of all pensioners in England and Wales — those on individual incomes up to £35,000 — will again receive a payment of £200, or £300 if they are over 80, from this winter.
She said the change of heart followed a change in the fiscal outlook — that the economy has improved enough to afford restoring the benefit.
It is fair to say this is disputed. Forecasters note the outlook is, if anything, slightly worse than before.
This is political. You can tell it is political, because it's messy.
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The decision to originally means-test the Winter Fuel Payment — stripping it from around 10 million better-off pensioners — was one of the new Labour Government's first and most controversial policies.
Reeves justified it as a necessary 'hard choice' to save about £1.5 billion a year and reinforce fiscal stability. However, the anger on the doorstep was palpable.
Labour campaigners reported the cut coming up 'again and again on the doorstep'. It clearly contributed to their poor showing in the local elections this year.
The U-turn — handily unveiled before the spending review — means roughly nine million pensioners will benefit, at an estimated cost of £1.25 billion, essentially wiping out most of the savings.
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The Chancellor has not explained exactly how she is going to fund the cut. The Institute for Fiscal Studies' outgoing director Paul Johnson said that since Labour insists no new borrowing will cover this, 'as sure as night follows day' it implies permanent tax increases or cuts to fill the gap.
There are also questions about the hastily engineered solution. Because the threshold is applied per individual, not per household, it creates odd inequities. A wealthy couple where one partner has a pension income of £100,000 and the other £30,000 will end up getting a Winter Fuel Payment for the lower-income partner, while a middle-class couple with two pensions of £36,000 each will get nothing.
Messy — but it still creates a dilemma for the Scottish Government.
Do SNP ministers maintain their original universal benefit plan, announced last year in the wake of Reeves's cut, and risk some pensioners being worse off than their English counterparts, or match the targeted scheme to make sure there is no cross-Border detriment?
The revised Scottish scheme sees pensioners on certain means-tested benefits get £200, or £300 for over-80s, while all other pensioner households receive a flat £100.
Under the status quo, a Scottish pensioner not on Pension Credit but with a modest income — say £15,000 or £25,000 a year — is set to receive £100, whereas if they lived in England or Wales they would now get £200 or £300 if over 80.
Estimates suggest hundreds of thousands of Scottish pensioner households could be worse off relative to their peers in England and Wales.
The Treasury says consequentials will be worth £250 million, though the Scottish Government does not recognise that figure.
If Scotland sticks with universality and uses the consequentials to increase the winter payment for all Scots pensioners, that could mean giving a £200 payment even to relatively wealthy retirees. It is also very pricey.
Alternatively, Scotland could revise the scheme to more closely target low-to-middle income pensioners, aligning it with the new UK threshold. However, going down this path means abandoning the SNP's universal promise.
By U-turning and trying to undo the damage of Reeves's tough choices, Labour has left the SNP with an impossible one.