Simon Less is Head of Policy Exchange's Energy and Environment Unit.
The Emergency Budget tomorrow has the task of
finding huge cuts in public spending.
The Government faces difficult and unwelcome choices. The Treasury will be seeking to find those
areas of spending which offer lowest value in terms of what they achieve, as
well as spending which goes to those who need it least.
In March, Policy Exchange published a report
on one substantial area of spending which appeared, on both of these criteria,
to be a prime candidate for cutting.
This is the Winter Fuel Payment, which cost taxpayers around £2.7bn in
2009/10.
The purpose of this policy, as the name
suggests, is to help pensioners who struggle to heat their homes in winter. To achieve this, the WFP gives all pensioner
households a lump sum of between £250 and £400 each winter. However, a crucial fact is that only 18% of
households in receipt of the Winter Fuel Payment are classified as ‘fuel poor’
- i.e. spending more than 10% of their income on energy and therefore most
likely to struggling to heat their homes.
Moreover, 49% of all fuel poor households receive no Winter Fuel
Payment, as they are not pensioner households.
So the policy appears to offer poor value for money as a way of supporting
those who need help heating their homes.
The Winter Fuel Payment also goes to many relatively
well-off households. For example, at the
extreme, 100,000 households in receipt of Winter Fuel Payment have an annual
income in excess of £100,000. Most of
the Winter Fuel Payment spending goes to those who do not need it.
Overall the Winter Fuel Payment would appear to
be a strong candidate for cutting, compared to many other, more valuable, areas
of spending.
Poverty which makes it hard for households to
afford winter heating is a serious concern.
But the Winter Fuel Payment policy does not address this problem in a
remotely cost effective way. Fuel
poverty is most cost-effectively addressed by installation of household energy
efficiency measures, where the Government has proposed a new Green Deal, as
Policy Exchange recommended in its Warm
Homes report.
Some of the current £2.7bn spending on the
Winter Fuel Payment could be better focused on helping the poorest pensioners,
for example, by means-testing the payment, or by raising pensioners’ minimum income
guarantee. This would still leave
substantial scope for reducing overall public spending.
