Ministers are reportedly considering restoring the payment to all pensioners, after a backlash over its restriction last winter, but clawing some of the money back through the tax system.
The idea of reinstating it universally and recouping the cost through tax was floated by former Labour shadow chancellor Ed Balls on the Political Currency podcast, which he co-hosts with George Osborne.
Here, The i Paper speaks to the experts to find out what this means – and the issues it could cause.
Winter fuel payments used to be universal, but last autumn, the Government changed the system so that only the poorest pensioners – receiving pension credit – got it. The aim was to save around £1.5bn.
One option reportedly being considered is taxing winter fuel payments for high-earning pensioners.
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.
U-turn might be bad politically
Some experts have pointed out that changing the winter fuel payment system at this stage may not be particularly good politically for the Government.
Speaking to The i Paper, Professor Barber said the Government had been “obstinate,” refusing to compromise, and argued it “might have avoided the worst of the criticism by more thoughtfully handling” the change.
Ultimately, he said, “chances are it is now too late for the Government to bank any political credit for finally listening to public opinion.”
Sir Steve explained that clawing back payments from higher-rate taxpayers would recover only £200m in total.
Even making the payments taxable for all recipients would only raise around £400m, he added, “still leaving a big hole in the Chancellor’s already tight budget arithmetic.”
‘It would be much simpler for the Government to perform a full U-turn’
“Anything that moves from universality to means-testing will come with complications,” he said.
He said: “People accessing their retirement pot would have an incentive to stay below the higher rate to keep the payment.”
“Frankly,” he said, “it would be much simpler for the Government to perform a full U-turn.”
The Treasury has been contacted for comment.
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