RACHEL Reeves is coming under pressure to reverse a cut to the Winter Fuel Payment after being handed a £10 billion Budget boost by the Bank of England.
Labour MPs have called for the extra cash to be used to ease spending cuts being prepared for the Budget next month, which the Chancellor has claimed are needed to plug a £22 billion black hole left by the previous government.
Rachael Maskell, Labour MP for York Central, said that the money raised by cutting the Winter Fuel Payment was a “tiny proportion” of the windfall Reeves had been given and that she should “absolutely” reconsider in the light of the Bank’s move.
Reeves’s room for manoeuvre has been increased by a Bank decision to slow down the sale of government bonds stockpiled during the Covid lockdown.
Bank of England policymakers on Thursday voted unanimously to reduce the stockpile of bonds held by £100bn over the next 12 months, a change that could mean a £10bn boost to the UK coffers ahead of the October Budget announcement.
Reeves is, however, understood to be holding firm against backtracking on cuts and is planning to bank the windfall.
It comes after Reeves was warned earlier this week plans to slash public investment would continue to “damage the foundations of the economy and undermine the UK’s long-term fiscal sustainability” by a group of prominent economists and ex-civil servants.
In a letter to the Financial Times, former Cabinet secretary Gus O’Donnell, ex-commercial secretary to the Treasury Jim O’Neill and Professor Mariana Mazzucato, of University College London, urged the Government to avoid cuts and instead “implement a pro-investment fiscal framework that focuses on long-term fiscal sustainability”.
The letter said: “In the upcoming Budget it is essential that the Government recognises the important role public investment must play in the decade of national renewal.”
SNP MP Stephen Gethins said Labour's embrace of Tory spending rules was looking "less and less credible" every day.
He told The National: "The public purse has taken a double hit from Labour’s endorsement both of Tory spending rules and a hard Tory Brexit.
"That has meant less money to spend on crucial public services and greater mismanagement of the economy affecting us all.
"This week that Labour-Tory economic consensus took its own double credibility hit with the letter from senior economists warning Labour about their spending plans and then this warning from the Bank of England.
"The Tories were a disaster for the economy and every day Labour’s embracing of those failed plans looks less and less credible."
The Winter Fuel Payment was previously handed to all pensioners to ensure they could afford to heat their homes in the colder months, but it will now only be given to those who receive pension credit or other means-tested benefits.
Prime Minister Keir Starmer said on Thursday that “tough decisions” were essential to stabilise the economy and boost growth, but he has alarmed some of his MPs with warnings of a “painful” Budget.
“We’ve had a £22bn black hole left by the last government. I can’t walk past that problem,” he told ITV in a round of interviews.
Maskell said it would be a responsible decision to reconsider the cut to the Winter Fuel Payment.
She said: “I think there are many demands, but this is most urgent to keep people safe this winter. We’ve got to do everything we can to keep people warm. I would welcome the government delaying so they can properly review this decision and put mitigations in place to keep people safe.”
A Treasury source told The Times: “The Chancellor has said there will be difficult decisions across tax, welfare and spending at the budget. Nothing announced today changes that.”
One senior Labour MP also warned that if Reeves made further cuts while banking £10bn, “it’s going to go down extremely badly, not just with Labour colleagues who struggled with these cuts to Winter Fuel Payments, but with our constituents. This is not what a Labour government was elected for.”
