Winter Fuel Allowances

Tuesday 27th November 2012 Westminster Hall

11:00

[Mr Mike Weir (Angus) (SNP)]

I am pleased to introduce this debate under your chairmanship, Mr Amess.

When I introduced a private Member’s Bill on this topic, it received the support of hon. Members of all parties, which demonstrates the depth of concern about the off-gas-grid energy market. The issue has also been constantly raised by Members during energy debates. Unfortunately, Government Whips objected to my Bill, and it is now suffering a lingering death in the twilight zone of the Order Paper.

I do not intend to use this debate to address the general problem of fuel poverty, the details of which should be well known to Members of all parties. I note, however, that 15% of all households in the UK are not on the gas grid, and that some 32% of such households are in fuel poverty, as opposed to 15% of those on the grid. Unfortunately, it seems that little has been done to address the immense problems that have been raised over the years. The present Government, to their credit, got the Office of Fair Trading to undertake a review of the market, but to almost universal disbelief, frankly, that decided that the market was working fairly. Despite that, much of the OFT’s work on the market is of great interest.

I have raised the issue of winter fuel payments for off-gas-grid pensioners on numerous occasions, as I am sure the Minister knows. Ministers in this Government and the previous Government have indicated that the idea has merit but, of course, nothing has happened. Back in March 2010, the Select Committee on Energy and Climate Change, of which I was a member, raised the issue in its report on fuel poverty.

My Bill would not extend winter fuel payments to additional groups, nor would it tread on the contentious issue of means-testing winter fuel payments, which concerns some Members. My Bill does not attempt to address the many issues that surround off-grid energy. It is tightly drafted to give some relief to a particularly vulnerable sector: those pensioners who are off the gas grid. There are many such pensioners in my constituency, and they face a number of particular problems.

First and foremost, there is the cost of home fuel oil. As with all forms of energy, the price of home fuel oil has rocketed in recent years, but there is clear evidence that the price rises in the early autumn and stays high over the winter. Even valueoils.com, which sells the oil, states:

“Winter months are typically more expensive than the summer given the rise in demand across Europe, the summer months of June and July will usually provide the lowest rates.”

The graph on its website shows a dramatic price increase in all areas of the United Kingdom over the winter months, and it is important to note that that is as much an issue in rural areas of Wales, England and Northern Ireland as it is in the highlands and islands of Scotland.

When I secured this debate, Mike Foster, the former Member for Worcester, contacted me to point out that the Oil Firing Technical Association

“suggest a typical rural household could have saved £170 if heating oil was bought in June 2010 compared to January 2011 nearly doubling the value of the Winter Fuel Allowance.”

Even the House of Commons Library note that was produced for my Bill’s Second Reading states:

“The average costs of heating and providing hot water for a typical three bedroom house with LPG have been estimated at around £2,300 per year (based on April 2012 prices with a conventional boiler), heating oil is thought to cost around £1,700 and gas around £1,200.”

It is also worth noting that over the past four years the cost of heating an average home with propane or home fuel oil has increased by £850 and £750 respectively, while the cost for gas has increased by £400. Not only are off-grid homes more expensive, therefore, but the costs are rising much more sharply. In short, heating a home with liquefied petroleum gas costs almost twice as much as heating a home with access to the mains gas grid. Importantly, the main use of LPG and home fuel oil is for heating, so although those homes generally—as most homes do—have electricity and benefit from the discounts offered by energy companies, they still face greater costs, particularly for heating and cooking.

The traditional Government response has been to call for an extension of the mains gas grid as one way to address the problem. Indeed, the Scottish Government recently announced a new scheme to do that but, realistically, such schemes are going to help only those households with a mains gas supply relatively nearby. Even then, the cost of connecting to the gas grid can be substantial and well out of the range of many people who would like to be connected. I have dealt with cases in my constituency just outside towns when although there is a gas main relatively close by, residents have been quoted many hundreds of pounds for connection to it. Furthermore, many rural and island areas will never be able to connect to the gas grid. The grid simply does not exist in many remote areas, let alone in island areas, so in such areas the cost of connection would be enormous.

[Andrew Percy (Brigg and Goole) (Con)]

I have an example from my constituency. The marshland villages to the south of Goole are not on the grid. I have raised that with the network, and it has no intention of putting them on the grid. Such communities face the double problem of being more reliant on their cars and often living in the worst insulated houses.

[Mr Weir]

The hon. Gentleman makes a good point, and I was going to address some of those problems. In many rural areas, the situation is exacerbated by the fact that much of the housing is old and of a construction that makes it difficult to install energy-saving measures such as cavity wall insulation. Many houses in rural Scotland are of a solid wall construction, and there is a limit to what can be done to save energy. Once the roof insulation has been put in, the only real option is to install some sort of solid wall insulation, which is difficult in many of those houses.

Such households will receive the same winter fuel allowance as pensioners on the gas grid, but there is a crucial difference in how the energy is delivered. Those who are on the gas grid will receive their winter fuel bill around the time that the winter fuel allowance is generally paid, so the system works well for those people. Indeed, in the explanatory notes to the regulations that last amended the benefit, the previous Government specifically stated:

“They are paid in a lump sum each winter to ensure that money is available when fuel bills arrive.”

No one could dispute that that is a good thing, but that is not how it works for those who are off the gas grid. Such people face the difficulty of having to pay for their LPG or home fuel oil up front at the beginning of the winter, well before they have the benefit of the winter fuel allowance. Many find it difficult to do so and may not completely fill up the tank, leaving them having to do so in the depths of winter, which brings its own problems, and not only due to the cost.

The OFT’s report found that there are many competing suppliers in the market, but by definition many of those suppliers are small. Although some of the larger players offer greater payment flexibility, smaller ones are unable to do so. The Minister may be interested to know that some of the bigger players have expressed an interest in doing something, but they sometimes have difficulty finding vulnerable customers because of the regulations. Although electricity companies, for the purpose of the discount, can access such information, I understand that other energy companies cannot because of the way the regulation was drafted under the Energy Act 2010.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for bringing such an important issue to the House.

The same thing happens in Northern Ireland. Gas is available in Newtownards but not on the peninsula, while gas is available in Comber but not a few miles away in Ballygowan. For those reasons, accessibility is being held back for a great many people. Is it not time for the Government to consider issuing licences generally so that gas can be accessible for everyone?

[Mr Weir]

That is an excellent idea. I note that the leader of the hon. Gentleman’s party, among others, supported my private Member’s Bill, because this is a huge problem in Northern Ireland, although Northern Ireland has different regulations because social security is a devolved matter.

The price of fuel is rising—often quite substantially—as winter approaches. Even those suppliers that offer a fixed winter price will be doing so at a price higher than in the summer. As the Minister will appreciate, there can also be a problem getting a delivery. Hon. Members will recall the dreadful weather of two winters ago, when many of my constituents faced huge difficulties getting their tanks filled. Some were left with no fuel in the run-up to Christmas. The situation is exacerbated by how the oil companies work, because some modern tanks have a gauge, and the companies will deliver only when it falls to a certain level. If somebody cannot get their tank filled when they want to because the oil company has decided that it is not an urgent case, and bad weather then comes quickly, it can cause huge problems.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

The hon. Gentleman’s constituency and mine share problems involving off-grid gas. Does he believe that if there were a more focused approach on paying winter fuel allowances to those in greater need, some of our constituents might be better served?

[Mr Weir]

I said at the outset that I would not get into that argument, because I do not think that that is the way to proceed. Personally, I do not agree with the hon. Gentleman, because I think that the bureaucratic problems created might be great. I am trying to focus purely on those who would, under any system, receive their payment earlier because they are off the gas grid, and I shall go on to explain why.

The situation of two winters ago was perhaps exceptional, but it shows the additional problems faced by off-gas-grid consumers. My Bill proposed a suggestion for tackling those problems. Currently, winter fuel allowances are paid through a system involving regulations that specify a date by which pensioners must apply. It is worth noting, however, that once they are in the system, they do not have to reapply every year. Clause 1 of my Bill would have varied the regulations to bring forward the qualifying date from late September to late July for those off the gas grid. Clause 2 would have brought forward the payment date for those off the gas grid to no later than 30 September to allow them to buy a complete tank of gas before the winter.

When my Bill was presented, the House of Commons Library produced a note that considered how the problem might be tackled, including my suggestions. The Library identified two possible objections. I am not sure whether they are the same objections that the Minister will offer today, but I will comment on them briefly.

The first objection was that ordinary claimants might feel aggrieved at being denied early access. The whole point of the Bill, however, was to tackle the problem of having to pay for energy up front. Ordinary claimants, as the note describes them, would have access to the allowances, as stated in regulations, when their quarterly bills become due. I reiterate that the explanatory note to the relevant regulations state that the payment is meant to be made available when the bill arrives. For those who pay up front, the most appropriate way to achieve parity would be to make the payment as close as possible to the time of the outlay, which was precisely what my Bill attempted to do.

The second objection was that moving the application date forward could cause some people to lose out on the payment. I recognise that that could be a problem, but it is hardly insurmountable. It would be a problem only for the first year of each claim because, as I said, once applicants are on the system, they need not reapply each year, as they receive the allowance automatically. It would be possible, for example, to allow off-grid consumers who miss the earlier date to apply at the later date, but then to be transferred to the earlier date in year 2 to prevent difficulties. If the Government have other problems with an earlier date, will the Minister explain them? If it is just that they do not want to move the date at all, we could keep the September date, and simply allow payment to off-gas grid consumers at an earlier date from year 2.

There is nothing revolutionary about my proposals, which would simply make a minor change to begin to address off-gas-grid consumers’ problems by targeting a particularly vulnerable group. It seems to me that none of the difficulties are insurmountable with political will, but the whole issue of off-grid consumers seems to have been kicked into the long grass as being too difficult. The Bill would not solve all the problems, but it would make a start.

As I said, I have raised the issue on numerous occasions with Ministers in this and the previous Government. My Bill was born out of frustration that nothing had happened, but Ministers did not seem willing even to debate the issue. Although the Bill in front of mine was talked out, my Bill was not allowed to go to Committee so that the issue could at least be debated—it was objected to by the Whips and now presumably will make no progress. I secured this debate in the hope that the Minister will give us some answers about what the Government object to in trying to tackle the serious difficulties faced by this particularly vulnerable group.

11:15

[The Minister of State, Department for Work and Pensions (Steve Webb)]

Good morning, Mr Amess. I congratulate the hon. Member for Angus (Mr Weir) on securing this debate and on the efforts to which he has gone to raise the issue. I recall the Friday in question, when I had forsaken the joys of Thornbury and Yate to be with him in Westminster. I stood fully ready to respond to his debate, but unfortunately did not have the opportunity to do so. It is good to have the opportunity now to respond to the important and serious issues that he has raised.

The hon. Gentleman made the point that for a section of the population—as he rightly said, not just in rural Scotland but in rural parts of England, Wales and Northern Ireland—when they pay their big winter fuel bills is an issue. Whereas many people might pay around Christmas or early in the new year, the folk that we are talking about might pay in the autumn, for instance. He asked whether we could pay those folk their winter fuel payments early, and suggested that we would not do so during the first year after they reached women’s state pension age, because then they would lose out by a couple of months, but we could perhaps do it from year two.

One challenge of ours in responding to the hon. Gentleman’s suggestion is that at the moment the Government have a fairly slick and efficient way of getting those important payments to people. We have about 12 million pensioners in the land, and we make the payments as automatically as possible. To give him a feel for the problems involving claims, there is a set of men who are below the men’s state pension age but above the women’s state pension age who must claim for winter fuel payments, because we do not know that they exist. A 63-year-old man is entitled to a winter fuel payment, but does not receive a pension, so he must make a claim. It creates a big problem of complexity and take-up if a claim must be made; it is far better in terms of getting money to the people who need it if the process is as automatic as possible.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Will the Minister give way?

[Steve Webb]

I will not, if the hon. Gentleman will forgive me, as I want to respond to the points made by the hon. Member for Angus.

The hon. Member for Angus wants to ensure that the Government get payments to people. We want to ensure that we do so when we need to. Even with our systems, we do not manage to get the money to everybody before Christmas, although we get it to the vast majority—more than 95%, I think. One way to address his concern would be to bring forward the eligibility date for everybody; for instance, we could bring it forward from September to July. That would achieve his goal of getting the money to the folk who are off the grid when they need it.

The problem is that the vast bulk of people would then get their lump sum in autumn, rather than when the winter fuel bill arrives, which would be to their detriment. Surprising research by the Institute for Fiscal Studies found that because the money is labelled, branded and seen as a winter fuel payment, even though it is just cash and people can spend it on what they like, they are far more likely to use it for fuel bills than other cash coming in. We would be reluctant to move the bulk of payments away from the time when people’s principal bills arrive.

In that case, the hon. Gentleman’s proposition is that we identify a separate category of people who are off the mains gas grid. He said in his remarks that people would have to claim only once. I will return in a moment to the point about the claims process, but we would have to ensure that the data were accurate every year. To give a simple example, when I bought the house that I live in, which is not in the middle of nowhere by any means, it had no mains gas, so for one year we were off-grid. Had I been a pensioner when I bought it, I would have been entitled to early payment. The next year, we were connected to the gas grid. Somebody would have had to know that I was no longer entitled to the early payment. Either I would have had to report it to the Department for Work and Pensions, or the Department would have had to send people into back gardens; I do not know.

We would need a mechanism. Although the bulk of properties would be the same from one year to the next, there would be in-flow. New properties are built off the grid, and properties off the grid would come on to the grid. It is not as straightforward as the hon. Gentleman suggests. It would not be a one-off process in which once someone was in, they would qualify for ever.

[Mr Weir]

I understand what the Minister is saying, but I have two points. First, surely the churn would be relatively low. Secondly, with other payments, it is not unusual for claimants to have to notify the Department of changes in circumstance. Why would it be such a problem in this case?

[Steve Webb]

When the Department’s books are audited, we cannot say, “We think it’s broadly all right in most cases.” We have to make efforts to ensure that we are paying money only to people who are entitled. Although the stock would, as the hon. Gentleman rightly says, be largely the same from year to year, with some in-flow and out-flow at the margins, we have to ensure that the records are accurate every year. We need a mechanism in place to ensure that that is so.

To get this scheme up and running, we would have to identify which of the 12 million households were eligible for it and we would have to invent a claims process—I assume that the hon. Gentleman would suggest that people should be able to make a claim to us—and advertise that. We would then have manually to separate the potentially hundreds of thousands of cases, if not more, and process them differently. We estimate that the running costs to the Department would be several million pounds. It is not a trivial task. Is this the best way to help vulnerable households of the sort that both the hon. Gentleman and I want to help and support?

The hon. Gentleman raised an interesting issue about data on vulnerable households, which we deal with at the moment through the warm home discount. We have a deal with the big energy suppliers, through electricity bills, which helps people who are off the gas grid. We tie up their data, as customers, with ours on pension credit, age, and so on, and send a flag to the electricity companies to say, “This is a vulnerable household. Will you make a deduction at source from the electricity bill?” The figure at the moment is £130 this winter.

[Mr Weir]

I did not particularly mention that issue. Those who get the warm home discount will get it whether they are getting winter fuel allowance on-grid or off-grid. At least one large energy supplier told me that it would be interested in something similar, but because the Energy Act 2010 only allows data sharing with electricity companies, they cannot get hold of that information. Will the Minister at least consider whether it is possible to extend that regulation to gas and off-grid suppliers, some of which are fairly major now?

[Steve Webb]

Yes, I will. Our data sharing with pension credit customers is covered by the Pensions Act 2008, so in principle we can share our data, although we would need separate regulations for a different scheme. I am happy to explore that. If the hon. Gentleman provides me with details of the suppliers who expressed an interest, we could perhaps have a conversation with them. We might be able to do something constructive.

I take the hon. Gentleman’s point that some of the properties that we are talking about are hard to insulate, but I have always thought that far and away the best way to help people who are in fuel poverty is to tackle energy efficiency and wastage. I would far rather pay somebody £200—the winter fuel payment figure—to get their home better insulated, than pay them £200 simply to help them pay a sky-high bill for a house that is poorly insulated. Although some properties in the 1 million, or however many we are talking about, are of the sort that the hon. Gentleman described, many are not. These are important issues. My hon. Friend the Member for Brigg and Goole (Andrew Percy) mentioned his English constituency experience. Many properties are off-grid because of where they are, but they are not necessarily solid-wall insulated, or whatever.

We need to do a lot more. We have set up the energy company obligation, which is specifically designed to ensure that help goes to low-income and vulnerable households to enable them to heat their homes more affordably in the long term and to improve the energy efficiency of their homes. We are now setting up the green deal. The capital costs of home insulation are often quite large, but because of the cost of off-grid fuels, such as liquefied petroleum gas, oil, and so on, people could get substantial saving on bills. Under the green deal, essentially, people take a loan up front for large capital expenditure, but they then have a flow of savings. The golden rule of the green deal is that people are not lent more at the start than will be covered in repayments by savings on the energy bills. That is similar to the hon. Gentleman’s argument about there being a capital cost up front, as people would get their insulation done up front. That scheme might be particularly relevant to the sorts of households that we are talking about, because if their unit cost of energy is high, the savings they get from insulation will be high and the loan will be paid back within a reasonable time.

As the hon. Gentleman says, many people will use budgeting schemes with the larger oil suppliers. A colleague told me recently that they were off the gas grid and bought oil, but paid a flat amount every month. If people are in a position to budget through the year, there is no need for the Government to start moving winter fuel payments of £200 or £300 around a couple of months early. I take the hon. Gentleman’s point that some smaller suppliers might not offer such a scheme.

[Mr Weir]

I understand what the Minister is saying, but although somebody like myself, for example, would pay for my gas or electricity by direct debit and get a lower rate, not everybody is able to do that. Many off-grid pensioners simply cannot afford to do that. That is the basis of this problem and if we are going to tackle it—the same thing applies with green deal—we need to consider whether a pensioner can afford to take out a long-term loan to insulate their house. Probably, they cannot. There are difficulties in that regard.

[Steve Webb]

Perhaps I failed to explain the green deal properly. People can afford to do that, because the green deal only goes ahead if the savings on their energy bills due to insulation more than cover the repayment and debt-servicing costs of the loan. It is not a question of whether they can afford it, because it does not cost them anything. They get the capital up front and they have lower assessed energy bills, because the green deal does not apply unless they pass that test. So even including the repayment on the loan, they would be no worse off overall and they are living in a warmer home.

[Mr Weir]

But are they not effectively creating a larger debt based on their home? Many pensioners will be reluctant to do that.

[Steve Webb]

The requirement to repay is attached to the home, not the individual.

[Mr Weir]

It is effectively another mortgage.

[Steve Webb]

No. Because the home is better insulated than the one next door, the fuel bills are lower. The net effect is the same, except that when the loan is finally repaid people are living in a home with cheaper fuel bills. If I could choose between two properties in a street, one which had been green dealed and one that had not, I would go for the former, because the loan will come to an end and then I will have lower fuel bills than the house next door.

[Gordon Banks]

Will the Minister give way, just on that point?

[Steve Webb]

No, because the debate was called by the hon. Member for Angus.

The hon. Member for Angus was right to say that some pensioners may be wary of this scheme. I accept that. We need to look, for example, at budgeting support. I am a great fan of the credit union movement. We could find out whether we could do more to help low-income customers of the sort that the hon. Gentleman mentions with budgeting through the year. I am worried about our changing significantly a system, which runs pretty smoothly and efficiently for the vast majority of low-income pensioners who really need it, for a sub-group, within which many could manage with the right support.

A better approach would be to ensure, first, that the homes of the people we are talking about are as effectively insulated as possible and, secondly, that where it is a budgeting issue, which it essentially is, we help those with budgeting problems through other routes. Just being off the grid does not make the million or so households that are off-grid poor. I was not poor when I bought my house, but I was off the grid. So I would not need my winter fuel payment, if I were entitled to it, two months early. If we changed the system, we would be doing a lot of administrative messing around and keeping track of properties, with people making claims and signing off the system, and all of that, when this could be much more targeted.

The hon. Gentleman is right to raise the issue. People who heat their homes through off-grid routes are paying more and are more at risk of fuel poverty—that is correct—but we need a more targeted approach, rather than a broad-brush approach. We have to ensure that we do not mess up a system that works relatively efficiently. Although winter fuel payments are made to 12 million people every year, most Members of Parliament only get the odd complaint or a handful of letters each year, saying, “I didn’t get mine” or “I got it late”. Broadly, the system works. We do not want to mess up a system that works and spend millions on administration that could be better spent supporting vulnerable households.

I am grateful to the hon. Gentleman for raising the issue. His suggestion that, if the oil companies want to do more for vulnerable customers, the Government should try to help them, is good. I am happy to explore that. If he lets me know which suppliers are interested in doing this, the sort of data they would require and what schemes they would come up with, I am happy to explore whether there is more we can do to help in that regard.

11:29

Sitting suspended.