Reeves surrenders on fuel aid with 'messy' U-turn

Rachel Reeves has performed a spectacular U-turn on winter fuel payments for pensioners as Labour desperately tries to claw back support.

- DAVID MADDOX, MILLIE COOKE, ARCHIE MITCHELL

In a decision which will cost the Treasury £1.25bn, the chancellor announced that all those who qualify for the state pension on incomes of £35,000 or less will now qualify for the winter fuel payment.

The U-turn on winter fuel means that around 9 million – or three-quarters – of all pensioners will get the payment. Around 2 million will either have to opt out or pay the benefit back. But the chancellor’s decision has raised questions over how she will afford the annual bill ahead of a spending review tomorrow where she will have to unveil cuts.

Ms Reeves, who had been in last-minute wrangles with several departments over their budgets, received a boost yesterday evening as the Home Office – the final department to hold out – agreed to its funding. However, the £1.25bn cost of her winter fuel U-turn has wiped out almost the whole £1.5bn saving each year she identified by cutting it in the first place – leaving the chancellor with less cash to spend elsewhere.

Paul Johnson, director of the influential Institute for Fiscal Studies (IFS), warned the change in policy would lead to tax hikes or cuts to spending elsewhere. He also branded the changes “messy”, pointing out that a rich pensioner couple – where one partner has an income of £100,000, while the other has £30,000 – will still get money. By contrast, a couple where both partners have an income of £36,000 will get nothing, he said.

Meanwhile, Downing Street faced pressure to explain how the change would be paid for. Sir Keir Starmer’s official spokesperson insisted the financial details would be set out at the Budget this autumn but was unable to say whether the government had a plan to plug the gap opened up by the change.

The official also refused to rule out limiting eligibility for the payment again in future if the economy deteriorates.