How Rachel Reeves could row back on winter fuel without admitting defeat

Telegraph

07-05-2025

On hundreds of doorsteps, from Runcorn to Doncaster, Labour activists were confronted again and again with three words that have become synonymous with Labour's disastrous first year in power: winter fuel allowance.
Chancellor Rachel Reeves's decision to restrict universal energy support to pensioners in receipt of pension credit effectively snatched up to £300 from around 10 million people overnight. The cuts were widely blamed for Labour's poor performance at last week's local elections, not least by Wes Streeting, the Health Secretary, who said on Tuesday it may have cost the party votes.
With a year to go until voters head to ballot boxes again, ministers are understood to be scrambling. On Monday night, The Guardian reported that the Government was considering raising the pension credit threshold to allow more pensioners to access winter fuel support.
However, Sir Keir Starmer has ruled out an outright U-turn on the policy, telling broadcasters: 'We had to stop the chaos, we had to stabilise the economy.'
Mr Streeting said on Tuesday that the policy was not being formally reviewed, but that the Government was 'reflecting on what the voters told us'.
The decision to scrap the universal benefit is estimated to fill a fiscal black hole supposedly left by the Conservatives.
Amid the furore over the party's embarrassing performance at local elections, and a mounting rebellion over further planned cuts to disability benefits, Labour is under pressure to revive the winter fuel allowance in some guise without running up a sky-high benefits bill.
Here, Telegraph Money looks at the options:
Raise the pension credit threshold
Pension credit is the primary way pensioners can continue to claim the winter fuel payment. It is a means-tested state benefit for low-income retirees over state pension age, which is currently 66 for both men and women, rising to 67 between 2026 and 2028.
To qualify for pension credit, you must live in the UK and have a weekly income of less than £218.15. For couples, this threshold is £332.95. Under winter fuel reforms, only those with incomes below this limit would be eligible.
Sir Steve Webb, former pensions minister, has previously argued the threshold creates a 'sharp cliff-edge' for those whose income is just above pension credit levels, adding that 'anyone just a few pounds above the pension credit level suddenly loses entitlement to a list of additional benefits that come with pension credit, leaving them much worse off than someone on a slightly lower income'.
There is speculation that the Government could raise the threshold to allow more pensioners to claim the benefit. However, Sir Steve told The Telegraph the approach 'could be highly complex, would take time to design, legislate and implement, and could still have major problems of non-take-up if the rules of the new system were not straightforward'.
In the 16 weeks after the Chancellor's announcement, pension credit claims surged by 145pc, according to the Department for Work and Pensions (DWP). The Government received 215,200 claims between April and November last year, of which 81,000 were awarded.
Pension credit entitles claimants to so-called 'passported support', which includes help with council tax, housing benefit and free TV licences. Policy In Practice estimates that the average pensioner claims £6,800 a year in benefits linked to pension credit.
Sir Steve added that 'a significant chunk' of the savings made by the winter fuel raid would be lost if the threshold was raised, due to the high concentration of pensioners just above the current threshold.
The 'Martin Lewis' proposal – restrict to those on lower council tax bands
At the height of the energy crisis, the Government paid a £150 council tax rebate to those in council tax bands A to D. Ministers argued that this rebate allowed for support to be targeted towards those in low-quality homes.
Analysis of DWP figures by consultancy firm LCP reveals low income pensioners are far more likely to live in properties with a council band between A and D.
'Although paying benefits on the basis of having a lower value property is likely to involve paying to significant numbers of people who are not on a low income, it would certainly be a more targeted approach than a universal payment,' the report concluded.
Martin Lewis, the consumer champion, has favoured this approach, and reportedly put the suggestion to Ms Reeves last year. 'I have to say it is an imperfect solution, but it is a workable, quick solution,' he told the Today programme.
Restricting winter fuel payments to older pensioners
Perhaps the most straightforward solution available to ministers would be to reinstate the universal payment, but only for the oldest retirees.
DWP figures revealed that the surge in winter fuel payments made last year was almost entirely driven by those over 75. The number of younger pensioners who received the benefit was 'largely unchanged', the DWP said.
The logic of the solution was that the oldest pensioners were more at risk of higher energy bills.
Ms Abrahams said: 'Being chronically cold is a health risk for older people, especially if they have underlying health conditions, so this was potentially disastrous for them and also piled extra pressure on the NHS.'
However, LCP's analysis found the vast majority of the 1.9 million pensioners in poverty were not elderly.
The analysis found: 'Although around 600,000 [pensioners] are aged 80 or over and perhaps might better fit the stereotype of spending more time at home with the heating on, the majority of poorer pensioners are not elderly,' the report said.
'This means that any policy to restrict payments only to the oldest pensioners could risk excluding the majority of poor pensioners.'
Taxing winter fuel payments
To some extent, the Government already tailors support to those on low incomes using the tax system. Indeed, some retirees already pay tax on the state pension itself.
The DWP's database on households' below-average income does not separate which pensioners are taxpayers and which are not, and further complications arise since income tax is levied on individuals, while pension credit is paid to households.
'For example, in a couple where one is aged over 80 and the other is aged under 80, the household receives a £300 payment,' the report explained.
'However, because HMRC does not hold data on who lives with whom, it would not know that the person under 80 was, in effect, benefiting from half of a £300 payment rather than half of a £200 payment.'
LCP estimates taxing the winter fuel payment would raise £300m for the Treasury in a year – far less than the estimated £1.4bn savings touted by Ms Reeves when she announced the cuts.
The report found that this would adversely affect a negligible number of low income pensioners.
'All of the alternatives to the Government's proposal protect more low-income pensioners,' the report concluded. 'But those that have the greatest effect do so by significantly reducing the likely revenue from the policy.'
Simon Francis, of the End Fuel Poverty Coalition charity, has called for a social tariff on energy bills, which would see vulnerable households pay a lower per-unit price for their energy, which could then be topped up by the winter fuel payment.
'Older households who have disabilities or certain medical conditions will have higher energy use, and are more vulnerable to illness if they do not keep energy use at a certain level,' he said. 'Seeing this just as an income-related benefit doesn't account for the fact that older people living in cold, damp homes can become a medical problem, not just a poverty one.'
Mr Francis added that energy bill support would be necessary until Labour followed through on its pledge to fund the insulation of millions of homes.
However, the Treasury this week refused to rule out that the £6.6bn allocated to insulate millions of homes could be diluted to balance the books.