The vast majority of pensioners will receive the winter fuel payment this year, the Government has announced as Rachel Reeves confirmed a £1.25bn U-turn.
Anyone over 66 who has an income of or less than £35,000 a year will be eligible for the payment this winter, while those earning more will still be sent the money but then have it clawed back through the tax system.
The announcement, which comes ahead of Wednesday’s spending review, leaves a black hole of £1.25bn in the public finances which the Chancellor will need to fill at the autumn Budget through higher taxes, spending cuts elsewhere or faster economic growth.
It comes as part of an attempt by the Labour leadership to shore up support among their own MPs and the public in the wake of a poor local election result last month.
The i Paper was first to report in mid-May that a winter fuel U-turn was on the cards, and also first to report that a change would be sped up so that it would come in time for this winter rather than waiting until the Budget.
Reeves restricted the payment last year to people on pension credit, which amounted to just 1.3 million out of the nearly 11 million pensioners in England and Wales.
Under the new rules, all pensioners will receive the winter fuel payment – worth £200 for under-80s and £300 for those aged 80 or older – unless they choose to opt out through a new mechanism being set up.
Those with a taxable income of more than £35,000 will then repay the money through the tax system, via either PAYE or self-assessment. The Government estimates that around 9 million people will be eligible for the payment this winter.
Those who get their money via capital gains or dividend, rather than income, will still be able to receive the winter fuel payment.
In theory, the clawback mechanism could see the estates of higher-earning pensioners who have died forced to repay their winter fuel allowance, but the Treasury said that HMRC would not seek repayment from deceased people whose only tax debt is winter fuel.
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.
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“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.”
The new rules will save the Treasury £450m a year compared to universal eligibility, but will be £1.25bn more expensive than before the latest U-turn. It is not yet clear how the decision will be paid for and details will not be confirmed before the Budget.
Downing Street hopes that restoring the winter fuel payment to most pensioners will satisfy Labour MPs who have been angry about Government spending cuts, while also helping to arrest the rise of Reform UK.
Conservative 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 added: “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.”
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