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The UK authorities’s try to avoid wasting £1.5bn by chopping winter gas funds to pensioners may find yourself costing cash after a collection of offsets and U-turns, analysts have warned.
Prime Minister Sir Keir Starmer final week bowed to stress from Labour MPs to protect the funds for many pensioners, in a transfer that consultants say would scale back the deliberate financial savings to about £180mn.
On the similar time, there was about £230mn of latest claims for pension credit score after the federal government initially inspired purposes to offset the influence of the cuts.
“We may find yourself ready the place the brand new system really prices the federal government more cash total and has achieved appreciable political harm,” stated Steve Webb, a accomplice at pension consultancy LCP, who first recognized the potential losses.
Jon Greer, head of retirement coverage at wealth supervisor Quilter, agreed with the calculations and stated that by means of “poor choice making and a swiftly introduced U-turn with no plan in place” the federal government, “could discover itself including” to welfare prices.
The winter gas funds are the most recent instance of the federal government having issue implementing measures that cut back the deficit. Tax will increase on non-domiciled residents are being offset by rich foreigners leaving the UK.
Starmer reversed course final week on the reduce to gas funds for 10mn folks, one of many first insurance policies Labour put in place after successful energy final 12 months, telling MPs he wished “extra pensioners” to be eligible for the subsidy.
His transfer adopted widespread discontent amongst backbench MPs and native election losses this month the place the coverage was one of many high points raised by voters on the doorstep.
In 2023/24, the federal government spent £2bn on winter gas funds to 11.63mn particular person pensioners, with a mean fee of £175 per particular person, based on authorities knowledge.
But when Labour obliges higher-rate taxpayers to refund the fee, which officers say avoids the associated fee and complexity of means-testing, solely a small fraction of the beneficiaries will likely be affected.
At current, simply over 1mn pensioners pay revenue tax above the essential price, — 904,000 on the 40 per cent price and 124,000 on the 45 per cent price — based on knowledge offered by the division for work and pensions by way of a freedom of data request.
This means that the federal government would recoup solely round £180mn by clawing again funds from the 1mn higher-income pensioners by way of their tax returns.
This determine compares with the £230mn in further pension credit score payouts that official statistics point out the federal government has made since Labour introduced its cuts to the gas allowance in July final 12 months.
Amid warnings that the restrictions may plunge some pensioners into poverty, the DWP introduced a Pension Credit score Week of Motion, urging these eligible to use for a profit value on common £3,900 per 12 months.
Between July 2024 and Might 2025, there have been 58,800 additional awards of pension credit score in contrast with the identical interval final 12 months, based on authorities knowledge launched on Thursday.
A authorities spokesperson stated: “We inherited public funds that have been in a disastrous state and needed to take swift motion to stabilise the economic system.
“Our primary mission stays placing more cash into folks’s pockets by means of our Plan for Change — and we all know that many individuals are nonetheless scuffling with the price of dwelling, together with pensioners . . . That’s why we wish to increase the variety of pensioners who’re eligible for Winter Gas Fee when attainable.”