Rachel Reeves' winter fuel U-turn could be 'disastrous for economy', former Tory minister warns

The Chancellor confirmed today that more pensioners will receive the winter fuel payment by the end of this year, having originally scrapped the universal eligibility of the handout back in July.

The controversial decision was one of Ms Reeves first after coming into office last summer and would have restricted the payments to only those on pension credit or other means-tested benefits.

Whilst the decision to partially undo the controversial cuts may be seen as good news by many, Mr Gauke believes it could cause major issues in the bond market, which contains the financial institutions that lend vast sums of money to the Government every year.

Explaining his fears to LBC's Andrew Marr, Mr Fauke said: "When Rachel Reeves came in and she made that early announcement about winter fuel payments [in July], the reason she did that was to try to reassure the bond markets.

"She wanted to show that she was tough, that she would put reassuring the bond markets ahead of public opinion, that she was prepared to have a bit of a row in order to demonstrate her toughness, to reassure the markets.

"And my worry is that if we see concerns in the bond market more generally, probably driven by what's going on in America and the reckless approach of the Trump government to their public finances, that we might have an environment in which interest rates are rising.

"Financial institutions will therefore become reluctant to lend to Governments, and that the UK could be swept up into that."

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Addressing Wednesday's U-turn annoucement, Mr Fauke added: "The problem for the Government is if it sends out too many reassuring pieces of news to Labour MPs and to Labour voters, is that what is heard by the bond markets is, in the end, they'll bend to public opinion, they're not tough enough to bring borrowing down, and that we may see problems in the markets.

"If she's unlucky, I think there's a chance that that might happen."

Last July, Ms Reeves said she was forced to axe the winter fuel payments for around 10 million pensioners because their was a £22billion 'black hole' in the public finances.

The policy sparked outrage and dire warnings from charities about the impact of the cut.

Now, the Government has said the threshold for receiving the benefit will be changed, with more details of the U-turn being confirmed in Autumn.

At Prime Minister's Questions on Wednesday, Conservative leader Kemi Badenoch accused Sir Keir Starmer of presiding over a chaotic Government in their most heated exchange yet.

She was even criticised by the speaker for berating Sir Keir from her seat across the dispatch box.

Mrs Badenoch said: "Three weeks ago, the winter fuel policy was set in stone.

"Two weeks ago, the Prime Minister U-turned. Today, the Chancellor is rushing her plans because she just realised when winter is.

"So on behalf of the pensioners who want to know, can the Prime Minister be clear with us here and now: how many of the 10 million people who lost their winter fuel payments will get it back?"

Responding to the accusations, the Prime Minister said he was "glad to see" Mrs Badenoch was "catching up with what happened two weeks ago".

"At the budget, we took the right decision to stabilise the economy because of the £22 billion black hole that they left," he said.

"The signs, we took the right decisions, the growth figures are up, the interest rates have been cut, and we got three trade deals.

"So we will look, again, as I said two weeks ago, at the eligibility for winter fuel, and of course, we'll set out how we pay for it.

"But because we've stabilised the economy, we on this side are committed to the triple-lock, and that increased pensions by over £400 this April. On their side, they say the triple-lock is unsustainable ... I think her position is, she wants to means-test it."