Rachel Reeves Needs To Learn Lessons From Her Handling Of The Winter Fuel Allowance Abolition

12th September 2024

The chancellor did not construct a solid narrative for axing the winter fuel allowance.

It is possible that a month of bad headlines, criticism across a spectrum from Ed Balls to Robert Jenrick, the unsettling of a lot of Labour MPs and the alienation of a bunch of NGOs was all part of a Reeves-Starmer masterplan. But if Rachel Reeves wants to make more tough decisions, she will need a strategy to get wider consent, argues Jill Rutter of the Institute for Government.

As a raft of commentators have pointed out, there was no real need for Rachel Reeves to include the abolition of the winter fuel allowance (WFA) in her end of July statement. Whatever the lines to take say, there was no evidence for the claim that the financial markets would have condemned the chancellor to a Liz Truss-like meltdown if she had failed to set out a plan to deal with the "fiscal black hole" that she uncovered.

It may be that she and the prime minister used the abolition of the WFA - a poorly targeted benefit that the Conservatives had proposed means testing in their 2017 manifesto - as an early indication of seriousness of intent: that they had woken up to the fact that being a pensioner no longer meant you were necessarily poor and in need of top up welfare; that previous governments had, generally, protected pensioners at the expense of working age (and often working) families; and that part of the promised "change" was to tip the balance back. It may be that they intended it to signal to markets (and departments) that they were willing to go where governments had not gone before as a warmup to tough spending reviews to come. And it may be that the party managers saw this as a useful way of dipping bright-eyed backbenchers in the difficult realities of government.

The winter fuel allowance row shows up flaws that Reeves needs to learn from
On merits, there is a clear case for getting rid of the outdated winter fuel allowance. It is no surprise that - as George Osborne has confirmed - it appears regularly on Treasury officials' list of cuts. It is poorly targeted and was introduced when pensioners generally were much poorer. The government, like its predecessor, is committed to maintaining the triple lock which has delivered significant real terms increases in pensions not reflected either in wages or means-tested benefits in recent years.

But it is also true that the UK state pension is pretty meagre by international standards – and that the UK's draughty housing stock and high energy prices mean a lot of households, particularly those who spend a lot of time at home, struggle with their fuel bills. That means there was always likely to be emotive opposition to the move. Reeves also made her announcement just before Ofgem announced a very well trailed hike in the energy price cap for the three months from October. It would have been a much easier move to make if bills were coming down.

It would have also been a much easier move to make if she had presented it as part of a package. That is one of the big messages from our work on tax reform. Reeves could have waited until her 30 October budget, where it would have been set against other savings measures rather than looking like pensioners were being singled out. That would also have decoupled the announcement from the announcements on public sector pay, which the opposition has been quick to present as a raid on poor pensioners to fund relatively affluent train drivers.

But Reeves could also have made the move as part of a wider announcement. If she had delayed and announced it alongside the uprating due next April, she could have made the case the government are putting now that pensioners are getting a big cash increase (albeit a large element of recent pension increases is simply a reflection of past inflation). As well as linking to a campaign to promote pension credit uptake, she could also have set out some more detail about how Labour was planning to revive moves to make homes more energy efficient as part of its wider net zero mission – and would prioritise poorer pensioners this winter.

To give the Treasury more options, the UK needs better data for targeting
As we saw with measures to protect against the energy price spike, the lack of joined up data meant that government initially had to be indiscriminate, or use poor proxies like out-of-date council tax bands rather than targeted support. That was one reason why the UK ended up spending so much more on the energy price guarantee. But more could be done in future with the detailed information held by energy suppliers and government to target support better at those most in need. If Rachel Reeves wants to make sure that support gets to the right people, at an acceptable cost, she needs to make sure her officials have the systems in place to give her that option.

The government may tough it out this time – but as it moves to wider reforms it needs to look at smarter ways of constructing packages and getting its wider narrative right.

https://www.instituteforgovernment.org.uk/comment/rachel-reeves-winter-fuel-allowance