The average pensioner household would be up to pounds 100 per year better off and poorer pensioner households on income support up to pounds 130 per year better off when the money was coupled with VAT cuts, the abolition of the gas levy, new competition and tougher regulation of the utilities, the Chancellor said.
The money for the windfall is available because this year's net payments to the European Union are expected to be pounds 400m lower than budgeted for.
The average pensioner pays about pounds 612 a year for fuel, or pounds 11.80 a week. But pensioner households spend a larger percentage of their income, on average 6.7 per cent, on fuel, compared with the 4.5 per cent paid by most families. In 1996/7, more than 5 million cold weather payments were made at a total cost of more than pounds 42m.
The scheme was drawn up by Gordon Brown and Harriet Harman, Social Security Secretary. "[We] are simply not prepared to allow another winter to go by when pensioners are fearful of turning up their heating even in the coldest winter days because they do not know whether they will have the help they need for their fuel bills," said Mr Brown.
VAT on domestic fuel and power was reduced from 8 per cent to 5 per cent in last summer's Budget and took effect in September.
Mr Brown said the pensions review was looking at the long-term future of pension provision in Britain and Ms Harman announced that she was setting up pilot projects which would test different ways of getting pensioners their income support.
The scheme, costing pounds 15m and starting in April, will aim to find the most effective way of getting income support to the 1 million pensioners who do not claim it.
Sally Greengross, director general of Age Concern, said yesterday the charity was delighted that the Government had recognised pensioners' need for extra financial help with heating bills.
"The planned payments will help the poorest pensioners through the coldest, darkest months of the year. It lessens the stark choice between food and fuel," she said. "Last year 46,208 more people over 60 died during the winter months compared to the summer months; we hope the Government will continue to act to reduce this death toll."
National Pensioners' Convention spokesman Jack Jones, the former Transport Union leader, said: "This is very welcome indeed at the outset of the cold weather. Twenty pounds extra for a pensioner household is going to be very helpful for the 2 million pensioners who live on their own over the age of 75 and, of course, for those on income support it will mean pounds 50.