Pension Age Winter Heating Payment : Island Communities Impact Assessment

Executive Summary

4. This ICIA has considered the potential effects of introducing revised eligibility to Pension Age Winter Heating Payment (PAWHP), and how this policy might impact people living in island communities.

5. PAWHP currently provides older people in receipt of relevant benefits with additional support to help meet increased heating costs during the winter. With high energy prices continuing to be a key driver of fuel poverty, this support is particularly important given energy prices remaining high amid the cost of living crisis.

6. PAWHP was originally intended to be introduced as a universal benefit in winter 2024/25 as a like-for-like replacement of Winter Fuel Payments (WFP).

7. In July 2024, the Chancellor of the Exchequer announced the UK Government’s intention to restrict eligibility of WFP to those in receipt of relevant benefits. The changes to WFP eligibility reduced the Block-Grant Adjustment associated with devolution of the UK’s Winter Fuel Payment by £147 million in 2024/25, over 80% of the cost of the Scottish Government’s replacement benefit. Given this significant reduction in budget, after careful consideration of options the Scottish Government took the difficult decision to mirror the restricted eligibility of WFP for PAWHP.

8. For winter 2024/25, PAWHP was therefore introduced mirroring the decision to deliver WFP to those of pension age in receipt of relevant benefits. The relevant benefits included Pension Credit, Universal Credit, Income-related Employment and Support Allowance (ESA), Income-based Jobseeker’s Allowance (JSA), Income Support, Working Tax Credits and Child Tax Credits (CTC).

9. The timing of the UK Government announcement, and the lack of consultation or discussion with the Scottish Government, meant it was not practicable for the Scottish Government to deliver PAWHP in winter 2024/25. PAWHP was therefore delivered on behalf of Scottish Ministers by the Department for Work and Pensions under an agency agreement. This approach sought to ensure that eligible individuals in Scotland continued to receive support over winter 2024/25.

10. However, following the restriction of WFP eligibility and the decision to mirror this approach within PAWHP, the Scottish Government has consistently acknowledged that other people of pensionable age may also face financial difficulties and would benefit from this support. For this reason, on 28 November 2024 the Scottish Government announced that it will bring forward regulations to introduce a universal PAWHP from winter 2025/26 onwards.

11. After careful consideration of the financial position for 2025/26 and the significant demands upon the SG's budget, following the UK Government’s Autumn budget, and confirmation of associated budget in Scotland, Scottish Ministers worked at pace to consider options for delivery of Pension Age Winter Heating Payment in winter 2025/26, as well as mitigations available for winter 2024/25. Scottish Ministers considered the finance available, and concluded that payments at a rate of £100 to those pensioner households not in receipt of a relevant benefit was affordable, and would go some way to supporting those households towards meeting their heating bills throughout the winter. This approach recognises many people who are not entitled to Pension Credit or other low income benefits also require support.

12. From winter 2025/26, all pensioner households not in receipt of relevant benefits were to receive a minimum of £100 of support, with those in receipt of a relevant low income benefit^[3] and aged under 80 receiving £203.40 and those aged 80 or over in receipt of a relevant benefit, or whose partner in a joint claim has reached that age, receiving £305.10. Having considered the measures of the November 2024 announcement, the SFC forecasts at the time indicated that a universal PAWHP was expected to support 812,000 households in winter 2025/26, with an investment of £101 million in the first year.^[4] This is an increase from the expected 137,000 households forecasted to receive support in winter 2024/25 under the means-tested payment.

13. Prior to the UK Government decision to restrict eligibility of WFP we consulted on our policy proposals for PAWHP as a universal payment. Our public consultation on PAWHP ran between 23 October 2023 and 15 January 2024. During our public consultation^[5] on PAWHP, and Social Security Experience Panel survey,^[6] we gathered further evidence from key stakeholders and those with lived experience of the benefit system and experience of island and rural life, including specifically how we might improve delivery for those living off-gas grid.

14. Given the UK Government’s late change in policy and the lack of prior consultation with the Scottish Government, to ensure payments were made to pensioners in Scotland in winter 2024/25, it was not possible to consult further on the proposed eligibility changes to PAWHP prior to laying regulations for a restricted PAWHP. Similarly, following the Cabinet Secretary for Social Justice’s announcement on 28 November, given the timescales for legislating and delivery, it has not been possible to carry out a further public consultation exercise on these proposals. However, we have reflected on the information available to us, from the previous consultation.

15. On 9 June 2025, the UK Government announced that they would reverse their earlier decision and will now bring forward legislation that, from winter 2025, expands WFP eligibility to pensioners with an individual income of £35,000 or less per year. The payment would be £200 per pensioner household with no individual over 80, or £300 per pensioner household with an individual aged 80 or over. This was expected to increase the amount of pensioners eligible to receive the WFP in England and Wales from 1.5 million to 9 million.

16. In contrast the introduction of a universal PAWHP for winter 2025-26 would have provided £203.40 to pensioners in receipt of relevant benefits below the age of 80, £305.10 for those in receipt of relevant benefits aged 80 and over, and £100 for pensioner households not in receipt of relevant benefits, with regulations laid before the Scottish Parliament on 6 June 2025 introducing this change. This would have been an estimated investment of £98 million in 2025/26 by the Scottish Government, compared to the £29 million for 2024/25 under the restricted approach. The revised approach decided by the Scottish Government for PAWHP will be an investment of £151 million.

17. As a result of the change in the UK Government policy the Scottish Fiscal Commission (SFC) predicts that the associated Block Grant Adjustment (BGA) funding the Scottish Government is expected to receive increases by around £120 million.^[7]

18. The UK Government decision was announced with no prior engagement with the Scottish Government, and Ministers and Officials within Scottish Government worked to understand the implications of the UK Government decision. Following careful consideration of the options available, the Scottish Government decided to mirror the approach for PAWHP. PAWHP will be paid to all pensioners, and will be automatically recovered through taxation from those pensioners with a personal income of over £35,000 per year. This tax charge will be introduced through separate legislation brought forward by the UK Government. The payments of £305.10 and £203.40 would lead to pensioners in Scotland being better off compared to those in the rest of the UK. The Scottish Government also started discussions with the UK Government to extend the proposed arrangements in England and Wales to recover payments from those pensioners with an individual income of more than £35,000 through the tax system, with the intention that the payment would be recovered automatically, with pensioners not needing to register with HMRC or take any further action.

19. This Island Communities Impact Assessment now considers the impact of extending the current PAWHP eligibility to pensioner households earning £35,000 or less from winter 2025/26 onwards.

20. In accordance with section 13 of the Islands (Scotland) 2018 Act, this ICIA has:

• Identified and described areas where PAWHP will have an effect on an island community which is likely to be significantly different from its effect on other communities (including other island communities
• Assessed the extent to which the Scottish Ministers consider that PAWHP can be developed in such a manner as to improve or mitigate, for island communities, the outcomes resulting from it.
• Considered and proposed mitigation or actions to support the aims of PAWHP within the island communities, and
• Considered any financial implications of the above.

21. The positive impacts of PAWHP that have been identified are expected to have a similar impact on rural and island communities as with the rest of Scotland. However, we recognise that fuel costs are on average higher for island communities than urban areas, and that payment values remain consistent across Scotland. Identifying these groups within the current caseload in order to make payments earlier, or to make a payment of higher value, would require significant systems development which will not be possible this winter. As with all social security benefits, we will continue to consider possible improvements post-delivery, including improvements for rural, island and off-grid communities.

22. The Scottish Government’s primary consideration is always about providing the right level of financial support to those who are entitled to it. However, it is also important to consider deliverability, affordability and to what extent changes might result in increased spending.

23. We will continue to consider any impacts that PAWHP may have on rural, island and off-grid communities.