Winter Fuel – They Thought it was All Over - It isn’t

 

This summer, Labour back-benchers finally managed to force Starmer to backtrack on the draconian restrictions to Winter Fuel Payments (WFP) first announced by Reeves shortly after the election in July 2024. For that we should certainly be grateful to them.

They weren’t, however, able to reverse the damage caused by this ill-considered measure completely. Instead of agreeing to re-instate the benefit for everyone and acknowledge it was all a terrible mistake, Starmer and Reeves insisted on attempting to 'save face' by applying a means test based on an income threshold of £35k p.a. This didn't cut much ice with the electorate if the polls are anything to go by, but it has set the scene for yet more pain for both the leadership and the Party….

Let’s take look at the practical implications of this move to find out why....

As we understand it, the plan now is for DWP to reinstate the £200 (£300 for over 80s) payment for all pensioners who were claiming their entitlement in 2024 before the axe fell (i.e. ca 10 million). Presumably DWP don't have the ability to apply the means test themselves and restrict payments according to income. HMRC, as the holder of all our financial information will then apply the means test and add this sum to the tax bill for everyone deemed to be earning above the £35k threshold that year.

And therein lies one of the problems that will come back to haunt them. Exactly how will they determine who is liable for the £200 claw-back, and how will they apply the deduction to any pensioner who isn't currently required to submit a Self-Assessment return (i.e. the vast majority of them, since most don't currently qualify for one) ?

At present, DWP normally assesses entitlement to WFP based on an individual's residence in UK during a particular week (usually in September) and then pays the money out in November-December of the same year.

HMRC, however, work largely in arrears when it comes to a final assessment of tax due for a given tax year, which runs from April to April. There is some talk of changing this to bring it in line with the calendar year, as it is in Europe, but this would require leigislation and cause a lot of problems with implementation. 

According to current rules, Self-Assessment returns for those who are required to complete them need not be completed until January of the following tax year This means that it will be effectively impossible for HMRC to determine what a pensioner in this group earns for the year the fuel payment applies to before the payment is due to be sent out; any clawback will take at least 9 months to apply, with the pensioner retaining the cash (any any interest it accrues) in the meantime.

And that’s not all. I order to align with DWP’s eligibility assessment, HMRC will have to assess eligibility retrospectively based on the individual’s earnings for that calendar year, which is different from the tax year.  This will generate a major resourcing headache for HMRC, who will in practice have to request an additional self-assessed statement of earnings from each and every claimant for the calendar year, since only they will have the necessary data to hand. Apart from the resource drain for HMRC, this will also introduce an extra administrative burden on many millions of pensioners who do not currently have to fill in a Self Assessment return, with inevitable gaps in the records. Those affected may well not be able to subit records, due to infirmity, mental illness, or indeed digital exclusion, adding an extra headache for them and HMRC. 

One can only guess at the difficulties for HMRC that setting up and running this extra assessment process will cause, and it will all come just at a time when Reeves is pressuring them to clamp down on tax evasion, avoidance, etc., etc., which even the proposed 'army' of new recruits won't be able to cope with. The outcry from pensioner support groups will undoubtedly also be loud, but of course, Starmer of course won't listen to them (although his back-benchers might well do so when they realise the enormity of the mistake!).

The point of drilling down to this level of detail now is to show how little forward thinking has gone into the implications of forcing an additional means test. As we know from the leadership's previous conduct, this 'last stand' move on Starmer's part will have been aimed at getting back at pensioners for daring to enlist back-bench support to thwart his plans, as he will no doubt see it. His vindictiveness may yet, however, cost him personally, and his exchequer, dear....

Looking at the finances, the revenue HMRC are likely to save by applying the £35k means test will actually be minimal in terms of the total tax-take.  The goverment’s own website estimates the total number of pensioners earning above £35k at 2 million. Not all of these 'richer' pensioners will have bothered to claim the payment in the past (you need to claim it to get it in the first place). The maximum possible savings for the exchequer would thus be ca £450 million, even taking into account the relatively small number of over 80s receiving £300. 

To put this into proper perspective, the ‘Tax gap’ i.e. the amount of unpaid tax in UK in tax year 2023-4, has been calculated at a staggering £46.8 billion (i.e. 5.3% of all UK tax liabilities). 

If HMRC’s resources were diverted from tackling this enormous gap by WFP income assessments, such that even as little as 1-2% of the £46.8 billion were missed as a result, it would completely wipe out any gains from the WFP means test. Chances are that the damage will be a lot greater, given the likelihood that a whole new and inexperienced team or section will have to be created at HMRC just to manage the problem, and there is unlikely to be much extra headcount forthcoming elsewhere, given budget cuts.

What about the cost of setting up and running the new scheme ? The additional database connectivity setup between DWP and HMRC alone will require a significant additional effort from IT support, and this will need to be completed and validated before the end of this tax year (2025-6) in April 2026 to make the correct means test assessments for clawing back this winter’s re-instated WFP payments. The recruitment capaign and additional IT infractructure and software required will probably run into the hunderds of millions. And we all know how reliable government IT systems can be, and more to the point, how vulnerable they already are to hacker attacks. Almost every week we hear of another paralysing attack on a UK firm, with the after-effects still being felt by JLR and its suppliers 3 months down the line - it can only be a matter of time before HMRC gets hit, and they will be at their most vulerable during a major upheaval such as this one. Even if they do manage to set up a scheme in time without incident, going forward, there will also be a recurrent and significant additional overhead in running the scheme annually.

In short, it all promises to be a notable 'omni-shambles'....I can see tax evaders everywhere rubbing their hands with glee. The rest of us can only stand open-mouthed in wonder at the government’s lack of common sense and forward thinking (although we should be used to it by now !).

Starmer and Reeves are now still effectively ‘on the ropes’ as a result of the early September catastrophic dual high-level sacking events (Rayner was effectively sacked, although she was given the opportunity to resign ‘or else’; this was to save Starmer the embarrasment of sacking her, having endorsed her wholeheartedly just a day or two earlier). 

The prospect of another horrendous November budget, this time hitting 'the workers' in the pocket as well as business, just before the Christmans break, will exasperate the electorate even further. The smart money is now on Starmer having until May at the latest to turn things around for his government; no amount of foreign diplomatic junketing or Trump 'cultivation' (I can think of a far better term, but I'm far too polite to utter it here!) will save him if Labour suffer their expected wipeout at the hands of Reform in the Local Elections.

Various party left-wing hopefuls (notably Andy Burnham last month) seem to be warming up on the sidelines. Lucy Powell managed to get herself elected as deputy against Starmer's wishes, which should produce a few firework displays in the coming months. We can only hope the process of ‘enlightenment’ for Labour will now progress speedily, and we can be rid of this inept and vindictive leadership team once and for all….what we''l get in its place next summer is another matter....

First published 14.9.25; Revised 26.10.25