Rachel Reeves will eliminate winter fuel payments for 10 million pensioners to help fund substantial public sector pay increases.
The Chancellor announced plans to save £5.5bn this year, addressing a £22bn shortfall in public finances left by the previous government.
The majority of the savings will fund a £9.4bn pay settlement for public sector workers, excluding a 22% pay rise for junior doctors. One major change includes restricting winter fuel payments to those already receiving means-tested benefits, affecting nearly 10 million pensioners who will lose this benefit for the first time.
Currently, all 11.4 million pensioners receive an extra £200 to help with winter heating costs, with those over 80 receiving £300. The new measures will save £1.4bn this year and £1.5bn next year, reducing the recipients to only 1.5 million households.
Reeves also signalled potential tax increases in her upcoming Budget on 30 October. A Treasury document highlighted that the £5.5bn savings alone would not suffice to balance the books, indicating further fiscal measures are necessary.
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 “fictitious black hole” to justify new tax rises, suggesting this undermines political trust.
Labour is also expected to advance the introduction of VAT on private school fees from January 1, preventing early down payments to avoid the 20% tax charge.
Reeves stated that Whitehall’s day-to-day budgets are expected to be £21.9bn higher than previously anticipated, due to increased costs related to asylum claims and illegal immigration, which alone amount to £6.4bn this year. Additional spending on the NHS, Ukraine funding, and infrastructure maintenance has further strained public finances.
Labour will also terminate the Rwanda asylum scheme and cancel the Dilnot reforms, which were designed to allow people to retain more of their savings when paying for care costs.