Questions have been raised over Rachel Reeves’ winter fuel U-turn after it emerged the government plans to reinstate the payments for all pensioners before attempting to claw it back from millions through higher taxes.
The chancellor is expected to set out Labour’s plans to reverse the controversial policy change at Wednesday’s spending review, but fresh questions have been raised over how the government will distribute the payments.
Reports suggest Ms Reeves will from this autumn restore the grants, worth up to £300, to the 10 million pensioners who had lost out. But only those in the bottom half of average incomes will keep the payments, with the top half of earners forced to repay the grant through higher tax bills over the course of the year.
One option for the threshold at which pensioners are eligible is average household disposable income, currently around £37,000, The Times reported.
Such a plan would resemble George Osborne’s high income child benefit charge, which sees 1 per cent of total child benefit received taxed for every £100 earned over £60,000. It means that, over whatever threshold Ms Reeves sets for the payments, an amount will be clawed back from those on higher incomes.
The plans could cost around £700 million, with the chancellor vowing to set out her plans to pay for the change at her autumn Budget.
Dennis Reed, of over-60s campaign group Silver Voices, said the plans “would be an administrative nightmare and would be likely to draw in many more pensioners into the tax system”.
He told The Independent: “The most cost effective solution is to restore the universal benefit and maybe fiddle around with the higher tax threshold in due course to target ‘the millionaires’.”
Mr Reed accused the government of “casting around for ways to show it has not made a complete U-turn while gaining the political credit for doing so”.
It comes after pensions minister Torsten Bell said there is no prospect of the winter fuel allowance being restored universally.
He said: “The principle I think most people, 95 per cent of people, agree, that it’s not a good idea that we have a system paying a few hundreds of pounds to millionaires, and so we’re not going to be continuing with that.”
Sir Keir Starmer last month announced his intention to give more people access to winter fuel payments, just months after Labour made the previously universal payment means-tested in one of its first acts after taking office.
Speaking in Manchester on Wednesday, Ms Reeves said: “I had to make decisions last year to restore sound public finances, and that involved a number of difficult decisions around welfare, taxation and also public spending, including the decision to means-test winter fuel payments so only the poorest pensioners, those on pension credit, got it.
“But we have now put our public finances on a firmer footing. The economy is in a better shape, but we have also listened to the concerns that people had about the level of the means-test.
“So we will be making changes to that. They will be in place so that pensioners are paid this coming winter, and we'll announce the details of that and the level of that as soon as we possibly can.”
The Treasury and Department for Work and Pensions have been asked to comment.
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