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The reaction to the Chancellor’s decision to abolish the winter fuel payment (WFP) was somewhat paradoxical.

The reaction to the Chancellor’s decision to start means-testing the Winter Fuel Payment (WFP) might be regarded as somewhat paradoxical given that few voices had been raised in protest as the real value of the universal benefit collapsed over the last 20 years: it is now worth less than half its original value.

And over this period pensioners incomes increased at twice the rate of those of working age. On the WFP’s introduction, pensioners were by far the most likely to be in poverty, now they are the least. In Scotland, between 2020-23, 15 per cent of pensioners were in relative poverty (between 1995-8 it was 50 per cent) compared to 21 per cent of working age adults and 24 per cent of children. Over the same period, 6 per cent of pensioners experienced material deprivation compared to 10 per cent of children.

The Resolution Foundation has argued that “this change in the relationship between old age and low income is one of the most profound social and economic changes this country has seen over the past few decades”.

Nevertheless, the Chancellor’s decision on WFP was met with uproar and a vigorous campaign to reinstate full entitlement immediately launched.

Despite raising not a squeak over the long-term dilution of WFP’s real value, the Scottish government felt sufficiently moved to last week announce that it would introduce a package of measures to support pensioners with winter heating costs:

Pension Age Winter Heating Payments will be introduced from next year ensuring a payment for every pensioner household in winter 2025-26.

Pensioners in receipt of a relevant qualifying benefit, such as Pension Credit will receive Pension Age Winter Heating Payments of £300 or £200, depending on their age.

Meanwhile all other pensioner households will receive £100 from next winter, providing them with support not available anywhere else in the UK.

A £41 million package of support for people struggling with energy costs was also introduced for this winter.  These measures include an additional £20 million which will be provided for the Scottish Welfare Fund, to enable councils to provide more vital support to people in crisis this winter.

The whole episode highlights some enduring problems around the politics of the modern welfare state at both UK and Scottish level. Measures are prioritised due to political salience and outdated caricatures of disadvantaged groups rather than a sober appraisal of where need is currently most pressing. Consideration of the relative benefits of universality versus targeting/means testing is fuzzy at best.

And here WFP is particularly revealing. On ending the universality of the payment (universal to pensioners, that is), the UK government committed to an aggressive awareness raising campaign aimed at increasing take-up of Pension Credit. At present, Pension Credit, like all means tested programmes, suffers from a significant non-participation problem. In 2022, it was paid to only 63 per cent of families entitled to receive it. Since July, when the new eligibility restrictions were announced, an extra 42,500 people are now in receipt of Pension Credit (and will receive WFP) and the average weekly number of new applications has more than doubled, forcing the department to deploy 500 extra staff to process applications. 

If this awareness raising programme continues to be successful then it is highly unlikely that ending WFP universality will save much if any money – the stated aim of the policy. So, what was the purpose? Saving money or ensuring that all entitled pensioners actually receive Pension Credit? It can’t be both.

Similarly, in the Scottish government’s haste to fill the WFP hole it doesn’t appear to have posed itself some important questions: is this the best use of the – significant – funds? Can more effective inroads into poverty be achieved by spending this money elsewhere? How much of this cash is reaching pensioners most in need?

Our analysis finds that:

The cost of paying the £100 to pensioners not eligible for higher amounts is around £60 million.

Of this £60 million, just over ten per cent will reach pensioners in poverty. The remainder will be paid to pensioners who are not in poverty (and who would not be in poverty without the payment).

Is this the best use of this money or might it have been better spent on the Scottish Child Payment (our initial calculations indicate that using the cash for an above-inflation increase in the Scottish Child Payment would be around three times as effective in getting money to households in poverty), social housing, childcare, employability/training programmes or further education? All these areas play important roles in helping Scotland become the fairer, more productive nation the Scottish government advocates.

The answer isn’t clear and there will always be trade-offs. But it would be useful to have some reassurance that there is a robust prioritisation process in place; one that includes a proper examination of the costs and benefits of each policy.

The huge improvement in pensioner incomes – nominal and relative - over the past 25 years is very much to be welcomed and there are certainly worse things the Scottish government could spend its money on than its new Winter Heating Payments. But in a tight fiscal environment with a range of pressing demands on scarce resources, the question is whether this significant outlay could have been used to greater effect in meeting the first minister’s four key priorities, the first of which is of course the eradication of child poverty.

Stephen Boyd is director of IPPR Scotland