Rachel Reeves will scrap winter fuel payments for 10 million pensioners to help fund huge public sector pay rises.
The Chancellor has announced plans to save £5.5bn this year, addressing a £22bn deficit in the public finances left by the previous government.
Most of the savings will be used to fund a £9.4bn pay adjustment for public sector workers, excluding a 22% pay rise for junior doctors. Key changes include restricting winter fuel payments to those already receiving income-based benefits, affecting nearly 10 million pensioners who will lose these benefits for the first time.
Currently, all 11.4 million pensioners receive an extra £200 to help with winter heating costs, with those aged over 80 receiving £300. The new measures will save £1.4bn this year and £1.5bn next year, reducing the number of recipients to just 1.5m households.
Reeves also hinted at the possibility of tax increases in her next budget on October 30. A Treasury document highlighted that the £5.5bn savings alone would not be enough to balance the accounts, suggesting that other fiscal measures would be needed.
The Chancellor’s decision has drawn sharp criticism from former Chancellor Jeremy Hunt, who described Labour’s plans as “the biggest betrayal in history by a new Chancellor”. Hunt accused Reeves of using a “fake black hole” to justify new tax rises, suggesting it was undermining political trust.
Labour is also expected to seek to introduce VAT on private school fees from January 1, preventing early payments to avoid a 20% tax.
Reeves said Whitehall’s daily budgets were expected to be £21.9bn higher than previously forecast, due to rising costs related to asylum claims and illegal immigration, which alone amount to £6.4bn this year. Extra spending on the NHS, Ukraine funding and infrastructure maintenance has also put further pressure on public finances.
Labour will also work to end the Rwanda asylum system and repeal the Dilnot reforms, which were designed to allow people to keep more of their savings when paying for care.