Why did Labour hit pensioners’ pockets?

Rachel Reeves’ decision to slash the Winter Fuel Payment is a bit of a mystery. Was the Chancellor pushed into it by Treasury officials trying to slip a pet hate past her? Is she virtue-signalling at the bond markets? Did she know it would cause such a stink?

On the face of it it’s an odd hill to fight on. It’s not a life-or-death battle. With a simple majority of 158 seats in the Commons, Reeves and the Prime Minister can do pretty much what they like this early in the Parliament. 

As it turned out, the Government comfortably defeated an opposition motion on Tuesday to block the cut. Quite a few Labour MPs, unhappy at what looks like a decision to sacrifice pensioners on the altar of fiscal rectitude, either abstained or just went home. 

But we are still left with the question: why, of all the options available to her, pick on this one when it was bound to provoke a furore and, quite possibly, a Commons rebellion? 

What’s going on?

The straightforward explanation runs something like this: Labour have inherited a leaking ship. Every incoming government blames its predecessor for the unpleasant choices it makes. But the mess Reeves inherited is real even if it didn’t come as much of a surprise as she claims. There’s a gigantic £22 billion hole below the water line which needs plugging before the ship can resume its journey. 

Like its ruthless campaign to eradicate the stain of anti-Semitism, Labour feels it has to expunge from the mind of the public and the markets the notion that, like a slot-machine addict, it’s incurably spendthrift with money it doesn’t have. 

How much tougher can you get than depriving pensioners of a life-raft as winter approaches? The tougher she is the more confident investors will become in pouring money into the UK. Investment will lead to growth which, in turn, will lead to prosperity boosting Labour’s transformation for economic competence. This will lead to yet more investment. It’s the perfect virtuous circle. 

There’s a political calculation too. More older people vote Tory. Younger people tend to lean to the Left. Starmer knows that to win the next election he will need, to put it crudely, the votes of living, not the dead. 

Let us unpack this. There are roughly 11.5 million pensioners in the UK. Around 1.5 million receive pension credits. They will continue to receive the £150-£300 Winter Fuel Allowance. Others, like me, who can manage without, will not. Which is fine. I’ve always felt it absurd to be handed a baby boomer bung. I could have sent it back to the Treasury, but that really would be throwing good money after bad. 

Even daffier is the fact that, since 1997 when it was introduced by the last Labour government, many recipients were or have become millionaires. Fraser Nelson, editor of the right-wing Spectator magazine, tells a story of an acquaintance who, every year, buys champagne with his payment and shares with friends at Christmas. 

State-funded universal support is a blunt instrument, none more so than the Winter Fuel Allowance. But it isn’t unwarranted. There will be those on the cliff-edge who do not qualify but who will be badly hurt by this, equally blunt, decision. 

Old age is rocky path. The older you get the less well-equipped you become to deal with life’s twists and turns. That’s certainly true of the less well-off. Single pensioners have the added burden of loneliness. When you’re on the breadline navigating an inhospitable system can be soul-destroying. So on the face of it Starmer and Reeves are being tough with the weakest. 

But politics is smoke and mirrors. Things are rarely what they seem. A political machine as clear-sighted and politically astute as the one Keir Starmer has built is extremely unlikely to offer up a hostage to fortune like this. There will almost certainly be an Option B and C in the Chancellor’s back pocket. 

I wouldn’t be surprised if the Treasury finds a way to put this right without handing me £300 I don’t need or putting those faced with the grim choice of eating or heating this winter through the mincer. Reeves will have cemented her reputation as the Iron Chancellor. Starmer will have been seen to relent in the face of widespread pleas. Job done. I’m guessing. 

There is a broader point  – two actually. The first is that Britain may be GDP-rich but geographically it’s a patchwork of extreme wealth, great poverty and many in the middle who bob up and down between managing and struggling.

Second, we have created a monstrously complicated tax and benefits system which is expensive to run and, for many, a calvary to navigate. At one end of the wealth scale we incentivise tax avoidance for those, including corporations, who can afford the eye-watering fees of lawyers and accountants who have perfected the art. At the other we require the poor to jump through unforgiving hoops to get what they need. 

The two-child benefit is a prime example of a measure which not just unfair but illogical. A family may wish to only have two children. But what if the second pregnancy produces twins? 

Labour has a long road ahead of it. Starmer is not a great communicator. He has perhaps overdone the gloom. He must not fall into the trap of seeming to favour an austerity-lite regime. After everything he’s promised many would just walk away next time. 

But he understands that political survival lies in under-promising and over-delivering, something a now largely irrelevant Tory party has yet to grasp. 

It needs a direction and a map to get there. We’re beginning to see the outlines. A state that enables but does not dictate. A market economy that is free to take risks but within guardrails. Individual responsibility with a safety net. 

If there’s a lacuna it’s in the absence of a proper strategy to fund desperately-needed investment in technology and infrastructure. The decision to drop a second supercomputer in Edinburgh is a mistake and a blow to the development of AI. 

Starmer will stumble. The clumsiness of the Winter Fuel Allowance policy is his first. It will not be his last.

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