Reeves's winter fuel raid to raise £1.2bn less than expected

Telegraph

4 hours ago

Rachel Reeves's winter fuel raid will raise just £250m, experts have claimed, after the Chancellor was forced into an embarrassing about-turn.
The Treasury previously estimated the controversial decision to axe universal winter fuel payments would raise £1.5bn this year. However, experts on Monday said the real figure would be just £250m, leaving the Chancellor in a £1.25bn deficit.
Ms Reeves announced she would reinstate the benefit for 75pc of pensioners amid mounting pressure from Labour MPs and following the party's abysmal local election performance.
Under than changes, retirees whose annual income is below £35,000 will be entitled to a payment of up to £300.
Revised figures from the Treasury state the policy would still raise £450m, but Sir Steve Webb, a partner at pension consultant LCP, said it had ignored the additional £200m it has spent following a surge in pension credit applications.
It is estimated there were 57,000 additional claims for pension credit following Labour's decision to revoke winter fuel payments from 10 million pensioners last July.
Sir Steve said: 'These changes wipe out most of the extra revenue which the Government was expecting to get from the winter fuel payment policy.
'Not only has the Government knocked more than £1bn off the expected revenue, but it has also had to find more than £200m per year extra because of the surge in pension credit claims.
'Overall, the amount raised looks tiny relative to the political damage which the whole episode has caused to the Government.'
Rachel Vahey, of investment firm AJ Bell, said 'the net saving from the whole exercise is likely to be miniscule', citing the administrative costs of enforcing the new threshold and the rise in successful pension credit applicants.
She said: 'The route it has chosen is the most convoluted and difficult. It will pay out the benefit to every pensioner, but then claim it back from 25pc of them – those with an income of more than £35,0000 – through a tax adjustment.
'This not only creates tax chaos for over a million people, but it creates a cottage industry for the Government to impose the clawback, creating additional admin which will cut into the estimated £450m saving to taxpayers.'
Julian Jessop, of the Institute of Economic Affairs, said: 'It is unclear whether the new plan will deliver any significant savings, but the clawback is certainly more complicated.
'The only positive from all this is that more low-income households who are entitled to pension credit are now claiming this benefit. But this will further reduce any gain for the Treasury.'
Mel Stride, the shadow chancellor, described Ms Reeves as a 'tin foil Chancellor', accusing her reversal of being unfunded and 'policy made on the hoof'.
He said: 'There was no justification for leaving pensioners in the cold last winter. Labour's U-turn on winter fuel shows it was completely unnecessary, and it raises more questions than it answers.
'They already spent the savings from this policy on inflation-busting pay deals for the unions. So where is the £1.25bn needed to pay for this U-turn going to come from? Our tin foil Chancellor says costs will be accounted for at the Budget – in other words, she doesn't yet know.'
Ms Reeves's new threshold means nine million pensioners will now get the annual payment worth £200 per household, or £300 per household where an occupant is aged over 80.
The payment is split between members of a household, however, under the new system pensioners will qualify based on their individual income, a decision Maxwell Marlow, of the Adam Smith Institute, said was 'nothing short of baffling'.
He said: 'Regarding the specific makeup of households, it now appears they are relying on data that differs from that used by the Department for Work and Pensions – the department that is actually responsible for administering the benefit. This discrepancy urgently needs to be addressed to prevent further confusion.
'If I were a pensioner and earned £100,000, whilst my partner earned nothing, we would still receive £100 despite having money to heat the home. This raises serious questions about the fairness of the policy and demonstrates the need for a thorough review.'