Millions of poor excluded from aid for VAT on fuel

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The Independent Online
UP TO 5.3 million pensioners and 2.6 million disabled people will not qualify for extra government compensation paid to cover the cost of the imposition of Value Added Tax on domestic fuel, an analysis by The Independent on Sunday has concluded.

Thousands of low-income families with children and earnings just above the level to qualify for income support, and other means-tested benefits, will also miss out on the extra payments.

VAT will be charged at 8 per cent from 1994 and the standard rate, 17 1/2 per cent, from April 1995.

The findings of our analysis will reinforce fears among a growing number of Conservative MPs that the tax, announced by Norman Lamont when he was Chancellor in April, may prove to be as unpopular as the poll tax because it is perceived to be so unfair.

Pensioners groups are gearing up for a mass 'no pay' campaign similar to the poll tax rebellion. Leaflets will be sent out in the autumn by the organisers, the Pensioners Rights Campaign, which has about 50,000 members.

Pressure groups, including the National Association of Citizens' Advice Bureaux, the Child Poverty Action Group, Help the Aged and the Disability Alliance, are lobbying for the charge to be scrapped or for a compensation scheme which will reimburse the full cost of the VAT.

Some Tory MPs have already blamed the VAT policy for their party's defeats in the Newbury and Christchurch by- elections. Sir Rhodes Boyson, a member of the executive of the Tory backbench 1922 Committee, said: 'The Government will have to provide full compensation eventually. Pensioners are a very important voting group. Failing to compensate them fully will be morally wrong and politically suicidal.'

Sir Geoffrey Johnson Smith, vice chairman of the 1922 Committee, admitted the policy was perceived to be unfair and indicated the Government might drop plans for the second increase to 17 1/2 per cent.

He also indicated that ministers realised the proposed compensation scheme was flawed and said the Government could help compensate those pensioners and disabled people who pay tax by increasing the threshold at which they begin to pay tax.

The reasons why so many people will miss out on the compensation payments are complex. Ministers have promised that people on low incomes will be recompensed for the cost of VAT on fuel bills.

The Treasury estimates that the VAT imposition will push up inflation by nearly 0.4 per cent next year and just over 0.8 per cent in 1995. The Government has promised that people on all types of benefits, including pensions, will have benefits increased in line with inflation.

However, the inflation increase will not appear in benefits until 1995 and analyses have shown that the Retail Price Index increase will not fully compensate people on lower incomes, or those with extra needs for heat and light - such as disabled people and families and single parents with children.

In recognition of this the Government has promised to pay extra compensation to people on income support and other means-tested benefits - including housing benefit, family credit, council tax benefit and disability working allowance - from April 1994. The precise amount of compensation will be announced in the budget in November.

Figures supplied by Help the Aged show that of the 10 million people receiving the state retirement pension, just 1.4 million receive income support. Excluding these, and an estimated 3.3 million receiving community charge benefit in 1991 (now council tax benefit), means that 5.3 million pensioners will not qualify for extra help.

Since 25 per cent of pensioners receive enough income to pay tax, a more conservative figure for poorer pensioners who would not qualify for extra compensation would be 3.8 million - a total made up of 3.1 million pensioners whose income is above the income support level, but below the tax threshold, and 700,000 who are entitled to claim income support but do not.

The Disability Alliance estimates there are 6.5 million disabled people in the UK. A recent report by the Policy Studies Institute showed that 40 per cent of disabled people were not on means-tested benefits. On this assumption another 2.6 million will not qualify for the compensation.

An analysis of the impact of VAT on fuel by academics at Cambridge University shows it would bear seven times as hard on the poorest 10 per cent as on the top 10 per cent and three times as hard on the bottom 40 per cent as the top 40 per cent.

In a special analysis for the Independent on Sunday, Gerry Redmond, a research officer at the Microsimulation Unit, at Cambridge University, found even greater differences in fuel consumption for pensioners living alone and lone-parent families.

Using data from the 1988 Family Expenditure Survey his analysis showed that, on average, pensioners living alone spend about 14 per cent of their total expenditure on domestic fuel compared with about 10 per cent for pensioners who live with other people. People other than pensioners spend about six per cent.

The analysis showed that lone-parent families spend about double the amount other families with children spend on domestic fuel as a proportion of total expenditure - 11.54 per cent compared with 5.56 per cent. This is probably because, in general, lone parents have less income. Lone parents spend about pounds 8.61 per adult and pounds 3.44 per child per week while two-parent families spend about pounds 6.84 for the first adult, pounds 4.10 for the second and pounds 2.74 per child per week.

Phyllis Keen, 78, from Ferndown, Dorset, who suffers from severe rheumatoid arthritis and osteoporosis, and is virtually confined to a wheelchair, is one of the 2.6 million disabled people who will not qualify for compensation because her benefit is not means tested.

Miss Keen, who has been ill since 1974, receives pounds 44.90 disability living allowance care component and pounds 31.40 mobility component. People on the disability working allowance will be entitled to compensation, because that is means tested. 'It's crazy that disabled people who can work will qualify but the more seriously disabled people, who cannot, will not qualify,' she said.

(Photograph omitted)