Reeves is playing fast and loose with public finances – just look at her own words

I will admit that a bulk of this column was written for me, quite handily by Labour’s own Treasury team.

After yesterday’s politically ‘ginormous’ U-turn by Rachel Reeves on winter fuel payments – returning nine million OAPs to the benefit – I thought I would take a look back at some of the economic arguments used in the House of Commons by the Chancellor and her Treasury team to defend their policy, and create a political headache over the past ten months.

Labour have continued to say the financial inheritance left by the Tories gave them no choice on the policy, but if something as big as a £1.5bn saving could be reversed like this, it must mean a flaw in their reasoning: either they were wrong, or they were lying in the first place.

After all, as the now Economic Secretary (at the time a junior DWP minister) told a Commons committee, the winter fuel cut represented “not an insignificant proportion” of Reeves’ £5.5bn savings she set out in last year’s budget.

Let’s start with the Chancellor herself and some of the excuses she gave for the decision at the time. Whether it was “necessary and urgent” or in order “to put the public finances on a sustainable footing”, she said it was part of a series of “tough decisions, but they were the right decisions in the circumstances we faced”.

Reeves added:

“On pensions and the winter fuel payment, this is not the decision I wanted to make and it is not the decision I expected to make, but we have to make in-year savings, which is incredibly difficult to do. Without doing that, we would put our public finances at risk.”

Public finances at risk, you say? Let’s look at the new set of numbers following yesterday’s U-turn. The Treasury says the new means test – where pensioners in England and Wales with an annual income £35,000 or below will now be eligible – will save £450m compared to universal payments, but the saving is expected to be around £200 million less this winter.

Alongside the higher take-up of pension credit – after the previous policy led to a flood of applications – which is set to cost about £229 million, it means that savings could be between as little as £30 million and £50 million this winter.

Back in July’s budget, the Chancellor said:

“We saw what happened when a previous Prime Minister and Chancellor played fast and loose with the public finances. I will not do that, which is why today I have been honest with this House about the scale of the inheritance that we now have to deal with and the necessary decisions, including on winter fuel payment, that I have had to take today.”

Making the decision on winter fuel in order to not play “fast and loose” with public finances, only to overturn it after it cost Labour millions of votes and months of political turmoil. 

Do we think Reeves has all of a sudden found some secret headroom or No10 have finally accepted that it is a huge vote loser? It is still not clear how this is even going to be paid for and our borrowing costs are already higher now than they were last July, so I think we can take a punt between the options.

Reeves’ second in command, Chief Secretary to the Treasury Darren Jones, only six months ago argued that the winter fuel decision showed the government “demonstrated that they will not shy away from doing what is needed to put welfare spending on a more sustainable path”.

But look to pensions minister Torsten Bell, who suggested yesterday that current rules on the two child benefit cap were not sustainable. “We cannot carry on with a situation where large families, huge percentages of them, are in poverty,” he told MPs.

While it is still unclear how this winter fuel reversal is going to be paid for, I’d love to know how further welfare changes – ones that the government, apparently, were showing they weren’t shying away from! – would be financed. It doesn’t exactly sound sustainable to me.

The Government is trying to argue they can afford to reinstate winter fuel payments because the economic outlook has improved, but even economists aren’t onboard.

Conditions have actually worsened since Starmer and Reeves stripped 10 million pensioners of the winter fuel allowance last year.

Paul Johnson, head of the Institute for Fiscal Studies, said their argument “flies in the face of reality” and was likely to mean “permanent additional taxes”.

He added:

“The fiscal situation is clearly less good now than it was last summer. If they are saying this means there will not be any additional borrowing then it follows that this will mean the equivalent of an additional amount of tax.”

Look back at what Labour’s Financial Secretary in the House of Lords, Lord Livermore, had to say originally about the financial incentives behind the cut:

“On the winter fuel payment, this of course is not an easy decision and I can understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend is not sustainable. Left unaddressed, it would have meant a 25 per cent increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.”

Left unchecked, he added, “it would be a risk to economic stability”. One has to wonder, if the fiscal situation has only worsened as the IFS say, what has changed to allow for greater spending first deemed “not sustainable”.

And here is the Government’s Exchequer Secretary to the Treasury James Murray on the original cut:

“No matter what the Conservatives choose to do, we are getting on with the tough decisions that are necessary in government.”

Emma Reynolds, Economic Secretary, made a similar point (though at the time a junior minister in DWP):

“It is now up to us to clear up the mess of the previous Government, so we had to take some difficult decisions.”

Perhaps, just perhaps, as Rishi Sunak and Jeremy Hunt made clear, there was no £22bn black hole after all? And the economic inheritance of this Government was a good state with a reduction in public borrowing and the environment set for inflation to come down.

Murray previously added:

“The Prime Minister has said that we must be prepared to be unpopular if we are to govern responsibly, which means facing up to tough challenges and tackling them head-on.”

Unpopular and tanking in the polls against a Reform party that is taking credit for the winter fuel U-turn after pledging back in May to fully restore the payments (something the Tories haven’t done, though across the board criticising the uncertainty of last winter and its effect on pensioners), Labour suddenly have the money to provide pensioners with the U-turn they wanted: sounds like a gerontocracy and a weak political party to me.