There seem to me to be two simple solutions.
1. Don't give these benefits to anyone who pays income tax. This seems to be a rough and ready way of identifying those who don't really need the benefits, without putting those who do to the fag of applying for them. It shouldn't be expensive since the authorities "know who we are" and I can't see any great harm in HMRC, who collect the income tax, communicating with whatever departments dish out the benefits.
Those allergic to simple arithmetic stop reading here, but:
2. A more sophisticated solution would be to multiply the value each benefit by the reciprocal of the marginal tax rate, impute this sum to the income of the recipient, and tax it.
The explanation for this is relatively simple whilst the marginal tax rate remains at 50%, viz:
- the reciprocal of 50% is 100/50 which is 2
- thus the winter fuel allowance, at present £200, is multiplied by 2 to give £400
- this £400 is addend to the income of every recipient, though they receive only £200
- for higher band tax-payers, this £400 is taxed at 50% ie £200, so the entire benefit is taxed away and they receive nothing.
- standard rate tax payers have their £400 taxed at 20%, which is £80. so they retain only £120 of the £200 received
- non-income tax payers would retain the whole £200.
I offer the above system to HMG for free: not all of us are motivated by the desire for more money. If HMG would like to reward me than a KCMG would be appropriate, but I'd happily settle for a blue plaque and a CBE.