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 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.
The U-turn comes just two days before the chancellor is set to publish her spending review after difficult negotiations on cuts with government departments.
Paul Johnson, director of the influential Institute for Fiscal Studies (IFS), warned the change in policy would lead to tax hikes or cuts to spending elsewhere.
He also branded the changes “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 money. By contrast, a couple where both partners have income of £36,000 will get nothing, he said.
Meanwhile, Downing Street faced pressure to explain how the change would be paid for. Sir Keir Starmer’s official spokesperson insisted the financial details would be set out at the Budget this autumn but was unable to say whether the government had a plan to plug the gap opened up by the change.
The official also refused to rule out limiting eligibility for the payment again in future if the economy deteriorates.
Announcing the new eligibility criteria, 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.”
Think tank the Resolution Foundation said almost half of the new beneficiaries as a result of the U-turn are already among the richest half of the population of the UK.
And it warned the income threshold will create new complexity in the tax system, leaving earners around the £35,000 mark facing a cliff-edge.
Economist Alex Clegg said: “The real question is why it is now a priority to pay Winter Fuel Payments to over three quarters of pensioners, with almost half of the new beneficiaries in the richest half of the population, when previously it was judged that only one-in-ten needed support.”
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.
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 Wednesday’s spending review.
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.
Those with incomes of £35,000 or below aged 67 to 79 are entitled to £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 – and declined to apologise to the millions, now eligible, who missed out last year.
Ms Reeves also 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”.
The prime minister’s press secretary said: “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.”
But opposition parties branded the move a “humiliating U-turn”, with Tory leader Kemi Badenoch saying the prime minister 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”, she said.
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 added: “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.”
