Labour’s spending plans descended into chaos last night as Rachel Reeves backed down over winter fuel.
The Chancellor said all pensioners with incomes of less than £35,000 will get the payment this winter following a huge public backlash over last year’s cuts.
The humiliating climbdown means nine million pensioners will receive the handout – worth up to £300 a household – at a cost of £1.25billion.
Ms Reeves refused to apologise for the original decision to slash the number of those eligible for the payment – a move which triggered a collapse in Labour’s poll rating.
She insisted she had been ‘right’ to cut the payment last year. And, despite having repeatedly attacked opponents for making ‘unfunded’ spending pledges, she refused to say how she will pay for the U-turn.
Labour MPs seized on the Chancellor’s political weakness and lined up to demand that she now scrap the two-child benefit cap and cancel plans to cut disability benefits at a combined cost of £8.5billion a year, fuelling fears of further tax rises.
Downing Street claimed the U-turn was possible because the economy had now ‘turned a corner’, despite the fact the Office for Budget Responsibility has halved official growth forecasts for this year.
Sir Keir Starmer insisted Labour had ‘fixed the foundations of the economy’, in spite of rising unemployment and inflation.
Reform leader Nigel Farage, who pledged this month to restore the payment in full, said Labour’s U-turn was triggered by ‘blind panic’ at its collapsing poll ratings.
The Treasury said the winter fuel reverse would not lead to a ‘permanent rise in borrowing’. Paul Johnson, director of the Institute for Fiscal Studies, said this was likely to mean ‘permanent additional taxes’. The move came ahead of tomorrow’s spending review, when the Chancellor will announce a spending spree totalling an extra £300billion over five years – equal to £8,100 for every taxpayer in Britain.
Labour minister Sir Chris Bryant said the review would mark ‘the end of austerity’.
But Tory business spokesman Andrew Griffith said Labour was ‘massively adding to the national debt our children will have to pay and ensuring that taxes will rise and growth will fall’.
Economists last night warned that the financial markets could turn on Labour if ministers were unwilling to keep spending on a ‘sustainable path’.
The Chancellor’s decision to means test the winter fuel allowance was one of Labour’s first steps in office last July. It meant that around 10million pensioners lost the previously universal benefit last winter. The decision also helped trigger a plunge in Labour’s ratings and was widely blamed for the party’s dismal performance in last month’s local elections, when it lost two-thirds of the seats it was defending.
A More in Common poll yesterday found that just 14 per cent of voters now think the Chancellor is doing a good job. Ms Reeves yesterday said she had ‘listened to people’s concerns’.
Kemi Badenoch urged ministers to apologise for the ‘callous’ decision to cut eligibility for the payment last year. The Tory leader said: ‘Pensioners were forced to choose between heating and eating last winter. Keir Starmer should apologise to them.’
Tory work and pensions spokesman Helen Whately said the U-turn was ‘most humiliating climb down a government has ever faced in its first year in office’.
Ms Whately added that the cut had contributed to an extra 100,000 visits by pensioners to A&E departments last winter.
‘Their mistake has hurt people and it is cowardly not to own up to it,’ she said.
But, asked if she would apologise, Ms Reeves said: ‘The irresponsible thing to have done last year was to allow the public finances to carry on on an unsustainable footing.’
She added: ‘I’m always going to put stability in our economy first.’
At present, only pensioners with an income of less than £11,800 are eligible for the winter fuel payment. This will treble to £35,000 this winter. It will continue to be £200 per household or £300 for the over-80s. The winter fuel retreat emboldened Labour rebels pushing for increased welfare spending. Left-winger Nadia Whittome said the episode had been a ‘fiasco’ for the Government and urged ministers to now abandon £5billion of cuts to disability benefits that are designed to curb the ballooning welfare budget.
Bradford East MP Imran Hussain said it would be wrong to continue with ‘devastating’ cuts to disabled support.
Former leadership contender Rebecca Long-Bailey welcomed the U-turn but said it was also ‘right to lift children out of poverty’ by scrapping the two-child benefit cap. The decision to restore the winter fuel payment to three-quarters of pensioners was welcomed by campaign groups.
Caroline Abrahams, of Age UK, said Ms Reeves’ reversal ‘will be a huge relief to many’.
Who will now get winter fuel payments?
If you are over state pension age and your income is less than £35,000 your household will now be eligible.
How much is it worth?
The annual payment is worth £200 per household, or £300 if someone who lives there is over 80.
How do I get it?
The payment will be made automatically to all pensioner households and then recouped from any that aren’t eligible.
Who will have to repay it?
If your income is above £35,000, your payment will be ‘recovered’ by HMRC or you can opt out.
What if my partner’s income is below £35,000?
Payments will be assessed on individual, not household, income. Payments are split if a household has two pensioners. In the case of a couple where one has an income above the threshold and one below it, half the total will be paid to the pensioner with the lower income.
Can I just turn it down?
If you know that you definitely won’t qualify for a winter fuel payment, as your income is more than £35,000, you can opt out to avoid the hassle of paying it back.
What if I need to pay it back?
Pensioners whose income is above £35,000 and who don’t opt out will need to pay all of it back. It will be repaid either via a self-assessment tax return, for those who complete one, or automatically through PAYE. The Treasury said: ‘No one will need to register with HMRC for this or take any further action.’
Is this plan for all of the UK?
The Treasury announced this move for England and Wales, but Scotland and Northern Ireland might make separate new arrangements. Last winter, Scotland replaced the Winter Fuel Payment with the Pension Age Winter Heating Payment. Northern Ireland made a one-off £100 payment to pensioners who lost their winter fuel payments.
How much will this cost?
The cost of reinstating Winter Fuel Payments for those now eligible is estimated at £1.25billion in England and Wales. Compared to when the payments were a universal benefit for pensioners, the savings will now only be around £450million annually.
Will family members be liable for tax if a pensioner above the threshold gets the payment and then dies?
HMRC will not pursue relatives if pensioners die before they can pay it back.