Chancellor Rachel Reeves has unveiled a controversial plan aimed at addressing a £22 billion shortfall in public finances by cutting winter fuel payments for nearly 10 million pensioners. The move is intended to save £5.5 billion, which will be redirected to fund a £9.4 billion pay settlement for public sector workers.
The new measure will limit winter fuel payments to pensioners already receiving means-tested benefits, resulting in nearly 10 million pensioners losing this benefit for the first time. At present, all 11.4 million pensioners receive an extra £200 to help with winter heating costs, while those over 80 receive £300. By targeting the benefit, the government expects to save £1.4 billion this year and £1.5 billion next year, reducing the number of households eligible for the payment to 1.5 million.
In tandem with the £5.5 billion saving initiative, Reeves has hinted at potential tax increases in her upcoming Budget on 30 October. According to a Treasury document, the savings alone will not be sufficient to balance the books, signalling that further fiscal measures will be essential.
This decision has met with sharp criticism from former chancellor Jeremy Hunt, who labelled it as the “biggest betrayal in history by a new chancellor.” Hunt accused Reeves of creating a “fictitious black hole” to justify new tax rises, suggesting that it undermines political trust.
The Labour government also plans to introduce VAT on private school fees from 1 January, preventing early down payments to circumvent the 20% tax charge. Additionally, Reeves has projected that Whitehall’s day-to-day budgets will be £21.9 billion higher than previously anticipated. This rise in expenditure is driven by increased costs linked to asylum claims and illegal immigration, amounting to £6.4 billion this year alone. Other factors contributing to the budgetary strain include additional spending on the NHS, Ukraine funding, and infrastructure maintenance.
In a related development, Labour will terminate the Rwanda asylum scheme and cancel the Dilnot reforms, which were designed to allow individuals to retain more of their savings when paying for care costs. These decisions further indicate the government’s shifting priorities in addressing the fiscal deficit.
Reeves’ proposal to redirect winter fuel payments aims to mitigate a significant budgetary gap, but it has sparked controversy and criticism. As the government prepares for the upcoming Budget, additional financial strategies and adjustments are anticipated.
