The UK’s fig leaf for energy efficiency

Costing the country almost £2bn a year, the Winter Fuel Payment has for 22 years provided the ultimate in quantitative easing, hiding the paucity of energy efficiency spending

The Winter Fuel Payment scheme is the largest single item of annual public expenditure linked directly to fuel usage. Now in its 22nd year of operation, it currently costs the taxpayer just under £2bn every year. It is regularly described as the Government’s largest programme to combat the scourge of fuel poverty that affects one in eight UK households.

Distributed later this month to almost 12m people of pension age, the payment is worth between £100 and £300 per household. The higher amount goes to those over 80, a growing proportion of those eligible. Its ostensible role is to underwrite the extra cost of paying household fuel bills during the colder period of the year. Even pensioners living in care homes- so presumably paying no fuel bills directly- still receive their allowance.

But of course there is nothing whatsoever that mandates those who receive this tax-free benefit to devote the revenue to anything as specific as fuel bills. Recently these payments have been informally known as “the grandchildren’s Christmas present fund.” Effectively, in classic economic terms, Winter Fuel Payments became the original Quantitative Easing programme: money being placed into the public domain to encourage spending.

All recent research has revealed that the vast majority of beneficiaries are most definitely not in fuel poverty. Indeed, the majority of households in fuel poverty are now occupied by people under 65.Witness the Scottish Government’s declared intention, now that it has extensive powers over social services, to expand the list of programme beneficiaries to families with severely disabled children.

Overall, the UK-wide budget of the programme has been gradually increasing towards the £2bn mark for some years. Back in 2011, when the Andrew Dilnot Commission reported on social services expenditure, the budget was £1.7bn . It was £1.97bn in 2018/19, and Dilnot had anticipated it would climb to £2.8bn by 2021/22. In practice, given that the age when women become eligible for pensions is now older than before, the Department of Work and Pensions now hope that the 2021/22 total will drop to £1.85bn.

Another reason why claimant numbers have been lower than originally anticipated has been the refusal to continue to pay the allowance to quite so many pensioners living abroad, even those with a “genuine and sufficient link to the UK”. Back in 2015 there were 141,000 UK pensioners abroad who received the allowance. Last year the figure was just 40,000. How did this cull take place? Simple. The government returned to the initial concept that the money was related to cold winters. And so decreed that those pensioners living in the more southerly EU countries (Cyprus, Malta, Spain and Gibraltar, Portugal, and France) could be excluded. For some reason, those oldies living in sunny Italy or Croatia still get the full handout.

Meanwhile, the official Fuel Poverty Committee for England has recently issued its most damning criticism yet of the failure of government energy efficiency programmes. Recommending revisions of the fuel poverty strategy, the Committee stresses that between them, the government and energy companies are spending £2.1bn per year in assisting householders to pay their energy bills. In contrast, only one-quarter of that amount ( £0.55bn p.a.) is allocated to improving household energy efficiency levels.

As Winter Fuel Payments are easily the biggest programme, the Committee is waxing indignant at its misallocation of resources. The funds received are mostly not spent on paying fuel bills, and very seldom spent on measures designed to reduce energy wastage. It has concluded that “in an era aspiring to ‘Net Zero’, this is not logical.”

It is impossible to fault the logic. Between 2001 and 2014 in England the predecessor body was called the Fuel Poverty Advisory Group (FPAG). (Full personal disclosure: for eight years to 2014, I was a member of that Advisory Group). It was a logic that we long recognised. Nonetheless it was never a policy change that FPAG endorsed.

I vividly remember the then Secretary of State for Energy, Sir Edward Davey, at one of our meetings imploring us to denounce the failure to use that £2bn each year rather more effectively – most obviously by increasing the proportion spent on installing energy saving measures.

I suspect that had we been confident that £2bn – or even a substantial chunk of it – would be genuinely ringfenced for energy efficiency investments, we would have readily endorsed his plea. But that isn’t the way the Treasury operates. Based on past experience, we reckoned that the Treasury would instead only hear us saying that much of the money was frequently not going to those in fuel poverty. And reckoning that this was reason enough to simply cut the programme budget in half.

Subsequently, we members of the old FPAG applauded our own perspicacity when, in its manifesto for the 2017 general election, the Conservative Party said it would means-test all Winter Fuel payments. That manifesto made no mention of reallocating any funds saved to funding any programme designed to improve the housing conditions of the fuel poor – even though no such programme had existed in England since 2010.

Fortunately, the subsequent “agreement” between the Conservatives and the Democratic Unionist Party from Northern Ireland contained an unequivocal commitment that there would no change to the “universal nature of the Winter Fuel Payment.”

Which is why this 22-year-old programme continues merrily, more quantitative easing than fuel poverty alleviation. It provides a fig leaf for energy efficiency, hiding the paucity of positive actions now backing it. But it is a fig leaf that well-meaning advisors would wish away at their own peril.