Pension Age Winter Heating Payment: Business and Regulatory Impact Assessment (BRIA)

Options

28. As part of our policy development for PAWHP, we examined WFP under its previous universal eligibility including any potential improvements.

29. However, due to the UK Government’s decision to restrict WFP eligibility, and the accompanying reduction of the Block Grant Adjustment funding in 2024/2025, the Scottish Government has announced its intention to replicate the approach taken by the UK Government, with PAWHP delivered by DWP under an agency agreement this winter. This approach will ensure that payments will be made to eligible pensioners in winter 2024-25.

30. Below is a brief examination of policy options considered when developing PAWHP.

Option 1: Universal Eligibility

31. Prior to the UK Government’s announcement and the accompanying reduction in Block Grant Adjustment funding, PAWHP was due to be introduced as a universal payment. This payment would be not be targeted and tax free.

32. The universal entitlement to, and automatic payment of the benefit was intended to ensure that take-up would continue to be high and to ensure all older people would receive additional money during winter which would encourage them to heat their homes for longer. We know that living in a cold home can be detrimental to many older people and that reduced muscle mass and poorer circulation can have an impact on the ability to stay warm. This can impact on the immune system, amplifying any pre-existing condition,^[4] therefore continuing entitlement to all older people was intended to ensure continued positive health effects for older people.

33. However, given the recent reduction in Block Grant Adjustment funding for 2024/2025 following the UK Government’s decision to restrict eligibility to those in receipt of relevant eligible benefits, this funding is no longer sufficient to support a universal approach.

34. Based on estimations of eligible claimants under universal eligibility, this option would have been an investment of around £180 million in the first year (2024-25), providing support to over one million eligible people.

35. Following the UK Government’s restriction of eligibility to those in receipt of relevant eligible benefits, the Block Grant Adjustment was reduced by an estimated £150 million in 2024-25, over 80% of the cost of PAWHP. Any resulting increase in expenditure would need to be met from the largely fixed Scottish Budget. Due to this significant reduction of budget, the option to deliver Pension Age Winter Heating Payment as a universal payment is no longer practicable.

Potential alternatives to delivering a universal benefit

Option 2: Universal eligibility with a flat rate of payment

36. Prior to the recent restriction of eligibility, WFP delivered four different payments of either £100, £150, £200 or £300 for individuals. Keeping the same eligibility criteria but introducing a flat rate of payment would simplify the process.

37. We committed to no one being worse off when introducing the replacement benefit, and therefore, to meet that commitment, the flat rate payment would need to be maintained at £300 to individuals over the state pension age, regardless of household composition (i.e., to the same level currently provided to a household if one or both members are aged 80 or over).

38. Consideration was also given to a flat rate of £200. However, at that time, around 160,000 people would receive less than they would under the current system and around 440,000 would receive more. The reduction would impact those aged 80 and over and living either alone or with no-one else over the State Pension Age.

39. Both options would have a significant increase in the cost of the benefit. The Scottish Government acknowledges that other people of pensionable age may also face financial difficulties and would benefit from this support. The UK Government decisions means it is not possible to extend the payment on a universal basis but, even if the resources were available to do so, it would not be practicable to make payments this winter other than on the basis of the revised eligibility criteria set out in the regulations.

Option 3: Targeted approach

40. Prior to the recent restriction of eligibility to those in receipt of relevant eligible benefits, WFP was a universal payment to older people and had been criticised for the lack of targeting at those who are fuel poor.

41. DWP will be delivering PAWHP through an agency agreement with Scottish Ministers this winter and PAWHP will be legislated for under the powers in section 30 of the Social Security (Scotland) Act 2018. This does not give provision for establishing an individual’s entitlement based on their financial circumstances but may make entitlement depend on another form of assistance.

42. Research has shown the majority of pensioners tend to have a relatively low income but also low housing costs as they own their home.^[5] This means that those in relative poverty after housing costs is slightly reduced in comparison to before housing costs. However, low levels of income alongside the likelihood of being on a fixed income makes it harder to pay more for heating during the winter, particularly given the significant increase in energy prices amid the cost-of-living crisis.

43. Consideration was also given to a more targeted approach such as using the funding towards increasing the value of the Warm Home Discounts scheme or limiting the payment to people who have been identified as fuel poor. However, additional support is already available to support householders improve energy efficiency, such as Area Based Schemes, Warmer Homes Scotland and Home Energy Scotland which will reduce the costs of heating homes in the future. The Minister for Climate Action has also secured the agreement of energy suppliers to participate in a working group aimed at co-designing a social tariff.

Sectors and groups affected

44. In consulting on the proposed introduction of PAWHP, we considered the potential impact on businesses and organisations that have a particular focus on the following:

• organisations supporting older people
• welfare rights organisations
• advice giving organisations
• energy advice and support organisations

45. Prior to the change in policy, stakeholders and organisations were invited to consider the impact of the proposed policy intent, both on their organisations, as well as on any client groups they support. We met with key stakeholders during the consultation to discuss our proposals. Given the manner of the UK Government’s announcement, with no prior consultation, and urgency in laying of these regulations, to ensure payments are made to pensioners in Scotland this winter, it has not been possible to consult further on the revised policy.

46. The DWP will have to administer appeals to the First-tier Tribunal for Scotland (Social Security Chamber) and act on behalf of the Scottish Ministers at appeal hearings. There will be impacts on, and associated costs for, the Scottish Courts and Tribunals Service as they deliver these appeals.

Costs

47. The UK Government’s decision to restrict eligibility to those of pension age in receipt of relevant eligible benefits has a significant financial impact. The Scottish Government estimates that this will reduce the Block-Grant Adjustment associated with devolution of the UK’s Winter Fuel Payment by an estimated £150 million in 2024-25, over 80% of the cost of the Scottish Government’s new replacement benefit, PAWHP.

48. The Scottish Fiscal Commission (SFC) has a statutory duty to provide independent and official forecasts of Scottish GDP, devolved tax revenues and devolved social security expenditure.

49. The Protocol for engagement between the Scottish Fiscal Commission and the Scottish Government notes that the SFC may produce forecasts where it considers the policy, or policies, to have a "non-negligible impact on receipts or expenditure". Having considered the measures in these regulations, the SFC forecast that the restriction of eligibility to those of pension age in receipt of relevant eligible benefits in Scotland reduce the spending to £32 million in 2024-25. The SFC forecast that PAWHP is expected to ease the financial pressures of increased winter heating bills for 137,000 households in 2024-25.

50. The payments are not restricted to payment of energy costs and therefore other sectors may also benefit from the investment.

Scottish Firms Impact Test

51. There may be some impact on businesses and third sector organisations operating in Scotland in relation to the way the Social Security Scotland agency delivers the devolved benefits compared to DWP. For PAWHP, the demands placed on third sector organisations to provide advice and support for people receiving and enquiring this new payment may change slightly. However, DWP will continue to deliver this benefit under agency agreement in winter 2024/2025. Given the like for like approach in the rest of the UK and the automated nature of the benefit, this should not require provision of complex advice.

Competition Assessment

52. The Scottish Government does not believe that PAWHP will have an adverse impact on the competitiveness of businesses or the third sector in Scotland, the UK, Europe, or the rest of the world. PAWHP does not directly or indirectly limit the number of suppliers, nor does it limit the ability of suppliers to compete or reduce suppliers' incentives to compete vigorously. Additionally, the Scottish Government does not expect there to be any significant impact on the operational business of local authorities or health boards as a result of introducing this provision.

Competition Assessment Questions

I. Will the measure directly or indirectly limit the number or range of suppliers?

No

II. Will the measure limit the ability of suppliers to compete?

No

III. Will the measure limit suppliers' incentives to compete vigorously?

No

IV. Will the measure limit the choices and information available to consumers?

No