Reeves forced into U-turn over pensioner fuel payments

Times

18 hours ago

The U-turn, when it came, was even bigger than expected. Rachel Reeves decided to clear the decks before the spending review by announcing that nine million pensioners would receive winter fuel payments this winter.
It was a move born of political ­necessity and that has little fiscal logic. When the chancellor announced that she was stripping ten million pensioners of the winter fuel allowance next year, she argued that it was fundamental to restoring economic stability.
'This is not a decision I wanted to make,' she said. 'Nor is it one that I ­expected to make. But these are the necessary and urgent decisions I must make. It is the responsible thing to do to fix the foundations of our economy and bring back economic stability.'
On Tuesday, economists point out that the fiscal circumstances are, if anything, significantly worse.
The reversal means that a policy ­intended to save £1.5 billion will now save only £50 million this year, at the expense of huge reserves of public goodwill and political capital. It will ­only add to pressure on the already ­ailing public finances.
Paul Johnson, director of the Institute for Fiscal Studies, said the decision meant there would have to be tax rises or more cuts to welfare in the autumn budget. 'To suggest the fiscal situation has got a lot better flies in the face of reality,' he said. 'If they are saying this means there will not be any additional borrowing then it follows, as sure as night follows day, that this will mean they will need to raise the equivalent of an additional amount of tax.'
It also means that Reeves has crossed another line. She had insisted that she would never make an unfunded ­spending pledge, arguing that to do so would be 'desperate and reckless'. That is exactly what she has now done, and the detail of how the about-turn will be paid for will be confirmed in the autumn budget.
After the announcement on Monday, Reeves found herself trying to argue that she had been right in scrapping the universal payments in the first place while simultaneously trying to justify the change in position. It was not an easy circle to square.
The decision was the result of a ­recognition in both No 10 and No 11 that cutting the allowance had been a ­mistake, although Reeves would not ­acknowledge that on Monday.
During the local elections in May, ­Labour activists found the issue of ­winter fuel coming up again and again on the doorstep. Polling found that the decision was one of the main reasons voters deserted the party, whether they moved to Reform UK or to the Greens.
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Discussion about a reversal began in No 10 almost immediately, but was ­denied for weeks by the government. By the time Sir Keir Starmer was ­confronted over the 'toxic' policy by a succession of angry MPs at a meeting of the Parliamentary Labour Party three weeks ago, it was clear that the position was beginning to shift.
However, concern that there was a lack of detail about what would replace the previous policy quickly made clear that the government could not wait long before setting out a replacement. Ministers were determined to introduce a means test to avoid paying 'a few hundred pounds to millionaires', and officials struggled to graft one on to ageing computer systems in the ­Department for Work and Pensions.
Eventually, it became clear that HM Revenue & Customs would have to be used, clawing payments back from wealthier pensioners through the tax system. This meant that a wish to base payments on household incomes had to be abandoned, as the system assesses only individual incomes.
Ministers picked a relatively high ­income, covering three quarters of ­pensioners, to make sure that no older people in poverty would lose out even at the cost of hundreds of millions of pounds.
Theoretically, this means that the pensioner partner of a millionaire will receive a winter fuel payment of £100 if they have an income below £35,000 themselves, but ministers ­decided that this was a price worth ­paying for a rapid solution.
For ministers who have spent months defending hugely unpopular cuts, there has been frustration about how much political capital was wasted for such tiny sums of money.
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Much of the blame is being pinned on Reeves. It was she who chose to press ahead with a cut long recommended by Treasury advisers but rejected as politically toxic by a succession of previous chancellors.
Starmer nodded the decision through, however, despite the clear risk of a severe political backlash. He is said to have been surprised by the scale of the reaction.
Ministers will be hoping that the turnaround is enough to quell public anger, which led Labour to slump in the polls.
Sharon Graham, head of the Unite union, one of Labour's biggest donors, put it bluntly. 'While this is an important step forward, questions will be asked about how this disastrous ­decision was made in the first place — the damage may not easily be ­reversed,' she said. 'Leadership is about choices and the choice to pit workers against pensioners was simply wrong.'