Extending the Winter Fuel Allowance

The Labour government has announced changes to its Winter Fuel Allowance policy, expanding eligibility from 1.5 million to 9 million pensioners in England and Wales. The new £35,000 income threshold replaces the previous restriction to Pension Credit recipients only.

The Winter Fuel Payment provides £200 for households with someone of State Pension age and £300 for households with someone aged 80 or over.

In July 2024, the government restricted Winter Fuel Payments to pensioners receiving Pension Credit or other means-tested benefits. The Department of Work and Pensions reports that this reduced the number of recipients from 11.4 million to 1.5 million pensioners - a reduction of 9.9 million people.

From winter 2025/26, all people above State Pension age in England and Wales with taxable income of £35,000 or less will receive Winter Fuel Payments; the amounts do not change. Those with income above £35,000 will receive the payment, but have it recovered through HMRC via PAYE or Self-Assessment.

The £35,000 threshold applies to individual income, not household income. If any person is eligible under this taxable income means test, the DWP will pay the benefit amount to the household.

For a single 70-year old, the new policy increases their net income by £200 between around £11,000 (where Pension Credit entitlement ends) and £35,000 in taxable income.

We estimate this reform will increase the deficit by £1.33 billion per year (the government estimates £1.26 billion in 2025/26), totaling £6.6 billion over the next five years.

Net revenue impact (billions)	2025-26	2026-27	2027-28	2028-29	2029-30	2025-30
Tax	0.0	0.0	0.0	0.0	0.0	0.0
Benefits	1.3	1.3	1.3	1.3	1.3	6.6
Total	-1.3	-1.3	-1.3	-1.3	-1.3	-6.6

We estimate that the reform will also benefit the second income decile the most in 2025, with the top three deciles benefitting by less than 0.1%.

The government reports annually on four poverty metrics:

• Absolute poverty before housing costs: households with income below 60% of the 2010/11 median income, adjusted for inflation.
• Absolute poverty after housing costs: households with income below 60% of the 2010/11 median income after housing costs, adjusted for inflation.
• Relative poverty before housing costs: households with income below 60% of the median income in the current year.
• Relative poverty after housing costs: households with income below 60% of the median incomeafter housing costs in the current year .

For each of these metrics, we simulate the change in the poverty rate and headcount as a result of the policy change. All reported years are fiscal years.

Table 2: Absolute poverty before housing costs

Year	Baseline rate (%)	Baseline headcount (thousands)	Reform rate (%)	Reform headcount (thousands)	Change in rate (pp)	Change in headcount (thousands)
2025	11.2	7,889	11.2	7,857	0	-32
2026	11.2	7,928	11.2	7,898	0	-30
2027	11.3	8,065	11.3	8,038	0	-27
2028	11.3	8,102	11.3	8,074	0	-28
2029	11.4	8,196	11.4	8,173	0	-23

Table 3: Absolute poverty after housing costs

Year	Baseline rate (%)	Baseline headcount (thousands)	Reform rate (%)	Reform headcount (thousands)	Change in rate (pp)	Change in headcount (thousands)
2025	16.7	11,708	16.7	11,694	0	-14
2026	16.9	11,928	16.9	11,910	0	-18
2027	17.3	12,294	17.3	12,278	0	-16
2028	17.4	12,408	17.3	12,388	-0.1	-20
2029	17.4	12,516	17.4	12,496	0	-20

Table 4: Relative poverty before housing costs

Year	Baseline rate (%)	Baseline headcount (thousands)	Reform rate (%)	Reform headcount (thousands)	Change in rate (pp)	Change in headcount (thousands)
2025	17.8	12,511	17.8	12,491	0	-20
2026	17.9	12,661	17.9	12,618	0	-43
2027	18.2	12,946	18.2	12,921	0	-25
2028	18.2	13,026	18.2	12,987	0	-39
2029	18.4	13,184	18.3	13,126	-0.1	-58

Table 5: Relative poverty after housing costs

Year	Baseline rate (%)	Baseline headcount (thousands)	Reform rate (%)	Reform headcount (thousands)	Change in rate (pp)	Change in headcount (thousands)
2025	24.3	17,067	24.3	17,049	0	-18
2026	24.2	17,082	24.2	17,073	0	-9
2027	24.3	17,302	24.3	17,277	0	-25
2028	24.5	17,471	24.4	17,454	-0.1	-17
2029	24.6	17,673	24.8	17,763	0.2	90

We also project income inequality metrics in PolicyEngine's open source model, including the Gini coefficient, the share of income held by the top 10 percent, and the share of income held by the top 1 percent.

Table 6: Gini coefficient

Year	Baseline	Reform	Change (pp)	Change (%)
2025	37.3	37.2	-0.1	-0.2
2026	37.5	37.4	-0.1	-0.2
2027	37.5	37.5	-0.1	-0.1
2028	37.6	37.6	-0.1	-0.1
2029	37.7	37.6	-0.1	-0.1

Table 7: Top 10% share

Year	Baseline	Reform	Change (pp)	Change (%)
2025	29	29	-0	-0.1
2026	29.2	29.1	-0	-0.1
2027	29.2	29.2	-0	-0.1
2028	29.3	29.3	-0	-0.1
2029	29.3	29.3	-0	-0

Table 8: Top 1% share

Year	Baseline	Reform	Change (pp)	Change (%)
2025	9.7	9.7	-0	-0.1
2026	9.8	9.8	-0	-0.1
2027	9.9	9.9	-0	-0.1
2028	10	10	-0	-0.1
2029	10.1	10	-0	-0.1

View the full PolicyEngine analysis here and use our household calculator to see how these changes affect individual households.