Economy could have crashed if winter fuel payments for pensioners weren’t cut, Labour minister claims

The economy could have crashed had the government not found savings by cutting winter fuel payments for pensioners, a minister has said.

Lucy Powell told Sunday Morning With Trevor Phillips that the loss of the benefit, which will now be means tested, was necessary because of a “£22bn blackhole” left behind by the Conservatives.

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Labour claim this is a worse deficit than they had expected, requiring them to make difficult choices.

Asked why pensioners had been targeted in the cuts – when public sector workers are in line for an above-inflation pay rise – Ms Powell said: “Finding savings in the current year that you are in is very difficult indeed.

“And why we had to do that was because if we didn’t, we would have seen the markets losing confidence, potentially a run on the pound, the economy crashing, and the people who pay the heaviest price for that are not you and me, Trevor, the people who pay the heaviest price when the economy crashes are the poorest in society.”

She added the public sector pay awards “were on the desks of ministers before the election, and they chose not to budget for them”.

She said this along with “nearly £7bn underfunding on the asylum system” had left a blackhole of £22bn.

“They knew they had these things on their desk, and they put their head in the sand, and they didn’t take the difficult decisions that they needed to take because they knew they were going to lose the election and it was going to fall to us to do,” Ms Powell said.

“And that’s why we’ve had to make some of these really difficult decisions around means testing the winter payment so that the poorest pensioners continue to receive it but some of the wealthiest pensioners won’t.“

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The Conservatives have denied covering up the extent of the shortfall in the nation’s finances and say Labour is using that as a “smokescreen” for cuts they had always planned.

The Tories and Liberal Democrats are pushing for a Commons vote to block the winter fuel payments change when parliament returns from summer recess tomorrow. Some Labour MPs have voiced opposition to the measure too.

A packed legislative agenda is on the cards, with bills on nationalising rail, renters rights and regulating water companies expected to be among the priorities of the new government.

The first budget is set to be announced in October, which Prime Minister Sir Keir Starmer has previously warned will be “painful” – though he said those with the “broadest shoulders should bear the heavier burden”.

Ms Powell, the leader of the House of Commons, would not be drawn on what this could mean, saying she is not part of those discussions.

Inheritance tax, capital gains tax and fuel duty have all been mooted as possible taxes that could go up.

Ms Powell said Labour will “stand by” its election promise not to raise national insurance, VAT or income tax.

Referencing a song by Oasis, which Ms Powell was able to get tickets to, she said: “I’m afraid we do look back in anger at what the last government left to this government in the economic inheritance and now we’re faced with some really challenging choices.”