Rachel Reeves has confirmed a major U-turn with almost all the pensioners she took winter fuel payments from last year set to have them returned.
In a decision which could cost the Treasury £1.25bn, the chancellor has announced that all those who qualify for the state pension on incomes of £35,000 or less will now qualify for the winter fuel payment.
This means that 9 million of the nearly 11 million who lost the annual support last year will get it back. The other 2 million will either have to opt out or pay the benefit back.
But Paul Johnson, director of the influential Institute for Fiscal Studies (IFS), warned that the changes were “messy”, pointing out that a rich pensioner couple – where one partner has income of £100,000, while the other has £30,000 – will still get £100. By contrast, a couple where both partners have income of £36,000 will get nothing, he said.
He also warned the winter fuel U-turn would lead to “permanent additional taxes” or cuts to welfare spending elsewhere.
The top economist said the downside of the chancellor claiming the move could be made without additional borrowing is that taxes will have to rise or spending cuts will have to be made.
The announcement comes just two days before the chancellor is set to publish her spending review after difficult negotiations on cuts with government departments.
When she announced the decision to scrap winter fuel payments for millions of pensioners soon after Labour took power last year, the chancellor claimed that the “tough decision” was unavoidable because of the £22bn hole left in the finances by the previous Tory government. The original decision was estimated to save the government £2bn.
However, there was a massive political backlash against the decision with Labour MPs blaming the defeat in the Runcorn by-election and humiliation in the local elections in May on the decision.
To add to Ms Reeves’ problems the Office of Budget Responsibility (OBR) refused to agree that there was a £22bn black hole in the finances instead suggesting it was £7bn.
Announcing the decision, Ms Reeves said: “Targeting winter fuel payments was a tough decision, but the right decision because of the inheritance we had been left by the previous government.
“It is also right that we continue to means-test this payment so that it is targeted and fair, rather than restoring eligibility to everyone including the wealthiest.
“But we have now acted to expand the eligibility of the winter fuel payment so no pensioner on a lower income will miss out. This will mean over three quarters of pensioners receiving the payment in England and Wales later this winter.”
Just over the weekend technology secretary Peter Kyle had claimed there would not be a decision before the spending review, which takes place on Wednesday, and instead it would be taken in the run up to the autumn budget.
The move though comes amid speculation that Ms Reeves could lose her job as chancellor in a reshuffle to try to reverse the unpopularity of the Labour government.
Labour has been losing support to Nigel Farage’s Reform UK with them announcing last month they would both restore winter fuel payments and end the unpopular two child benefit cap.
Speaking in Port Talbot in Wales, Mr Farage noted that the timing of the announcement was the same as when he was due to start his speech.
He boasted: “There’s no doubt we are making the political weather. The government would not have U-turned on this had it not been for the pressure that Reform are putting on them.”
A U-turn is now also expected on the two-child benefit cap as well potentially costing the Treasury another £3bn.
Ms Reeves will now need to find extra cash through cuts in her spending review due to be unveiled on Wednesday.
The Treasury estimates that approximately 2 million individuals in England and Wales over state pension age have taxable incomes above £35,000 who will not get the benefit.
However, pensioners above the £35,000 threshold will have the full amount of the Winter Fuel Payment they received automatically collected via PAYE, or via their Self-Assessment return. No one will need to register with HMRC for this or take any further action. Pensioners who want to opt out and not receive the payment at all, will be able to do so, with details to be confirmed.
Those with incomes of £35,000 or below aged 67 to 79 are entitled £200 winter fuel payments while those aged 80 and above receive £300 with one payment per household.
Downing Street said an improved economy was the reason it could raise the threshold for winter fuel payments.
The prime minister’s press secretary said: “Targeting winter fuel payments was a tough decision, but it was the right decision. We inherited a £22 billion black hole from the Tories who lost control of the economy, leaving working people paying the price.
“We had to stabilise the economy with tough decisions and it’s because of those tough decisions that the economy is beginning to improve. We’ve had the highest growth in the G7, four interest rate cuts in a row and real wage levels have risen by more since July 2024 than over the first 10 years of the previous Tory government.”
She added: “As the economy improves, we want to make sure that more people feel those improvements in their everyday lives. That’s why we are acting to ensure that more pensioners are eligible for winter fuel payments going forward.”
Meanwhile, Ms Reeves declined to apologise to pensioners over her cut to winter fuel payments, saying it would have been “irresponsible” to “allow the public finances to carry on on an unsustainable footing”.
Opposition parties branded the move a “humiliating U-turn”.
Tory leader Kemi Badenoch said: “Keir Starmer has scrambled to clear up a mess of his own making. I repeatedly challenged him to reverse his callous decision to withdraw winter fuel payments, and every time Starmer arrogantly dismissed my criticisms.
“This humiliating U-turn will come as scant comfort to the pensioners forced to choose between heating and eating last winter. The Prime Minister should now apologise for his terrible judgement.”
Liberal Democrat leader Sir Ed Davey said: “Finally the Chancellor has listened to the Liberal Democrats and the tireless campaigners in realising how disastrous this policy was, but the misery it has caused cannot be overstated.
“Countless pensioners were forced to choose between heating and eating all whilst the Government buried its head in the sand for months on end, ignoring those who were really suffering.”
Caroline Abrahams, charity director at Age UK said: “The decision to restore the Winter Fuel Payment to 9 million pensioners – all but those on the highest incomes who should be able to pay their heating bills without it – is the right thing to do and something that will bring some much-needed reassurance for older people and their families.
“At Age UK we heard from many through the winter who were so frightened about their bills that they didn’t even try to keep their homes adequately warm.”
