The Government’s U-Turn on the Winter Fuel Payment will create more problems than it solves

Robert Salter, Tax Director, said:

Pensioners with an income of under £35,000 per annum will now qualify for the WFP, which is welcome news for many. However, this move will create more problems in the long term than it solves for both pensioners and the Revenue.

Firstly this U-turn will create more unfairness in our tax system. A couple with each partner receiving an income of £30,000 each would qualify for the full WFP. But their fellow pensioners next door, with only one partner receiving an income of £36,000 in total, would get a much lower WFP, even though that second couple’s combined income is much smaller.

The mechanism to ‘clawback’ where payment is not due, is similar to the High-Income Child Benefit Charge (HICBC), which has been fraught with difficulties and complexities. Pensioners who are close to the threshold might consider whether they are better off opting out rather than risk being drawn into the self-assessment system.

The £450m that the Government believes that it will save compared to having the Winter Fuel Payment as a universal benefit could easily disappear. HMRC, who are already struggling to provide good customer service, will need to clawback the benefit from ‘wealthy pensioners’, meaning staff will have to be removed from regular tax compliance and investigation work – i.e. the type of work which could have brought bring in taxes from people who have made genuine errors or deliberately underpaid tax. And in the context of Government tax receipts and spending, £450m is a tiny amount.

Much of the complexity in the UK tax system has been caused by successive Governments making short-term tax-policy fudges and consequently layering additional complexity and process on HMRC and regular taxpayers.

This move by the Government is the latest example of this, and will create more problems than it solves for HMRC, taxpayers and the Government too.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Robert Salter using the form below.