Rachel Reeves’s about-turn on her winter fuel raid means the Government will save £1.3bn less than planned after a surge in pension credit claims.

The Chancellor and Sir Keir Starmer were forced to reverse their pledge to scrap the winter fuel payment for most pensioners in June following a Labour backbench rebellion.

The raid on pensioners was expected to save the Treasury £1.5bn. However, a combination of reversing the policy and rising pension credit claims now means the Government is expected to save just £227m instead.

This is because more people are claiming pension credit than expected, wiping out much of the savings predicted from the winter fuel policy.

On Thursday, figures published by the Department for Work and Pensions show that 181,100 retirees were awarded pension credit last year – 57,200 more than a year ago.

Because people who get pension credit are entitled to winter fuel payments, the surge means the Government is likely having to pay £223m extra in benefits every year.

This payment reduces the planned savings from scrapping the winter fuel payment from £450m to just £227m.

The Government had already reduced the expected savings from the winter fuel change to fall from £1.5bn to £450m after the benefits about-turn.

It means the Government is making just £1 in every £6 of savings predicted under the policy, according to consultancy LCP.

Sir Steve Webb, from LCP, said: “It is entirely welcome that more pensioners who are entitled to pension credit are now claiming what they are entitled to. But this surge in claims has put a further dent in the revenue from this ill-fated policy.

“Compared with the original plan to raise £1.5bn by means-testing winter fuel payments, the final saving could be barely one sixth of this amount. The Chancellor must wish she had never started down this path.”

The sharp reduction in savings comes as policy reversals by Labour continue to cause hurdles for the Chancellor. The watering down of the Government’s welfare bill is estimated to have shaved £3bn off predicted savings.

A series of government about-turns and a reduction in savings will cause challenges for the Chancellor as she prepares for her autumn Budget.

There are mounting expectations that Ms Reeves will be forced to raise taxes again in the autumn to meet her fiscal rules. Some are predicting she will have to plug a hole of up to £50bn in the country’s finances amid a rise in borrowing costs and policy changes.

A Department for Work and Pensions spokesman said: “By having an income threshold of £35,000 we’re ensuring that pensioners who need support the most receive it, whilst also making significant savings.

“Amid our biggest ever Pension Credit awareness campaign, between July 2024 and July 2025, 181,000 households were awarded Pension Credit, with awards worth on average £82 a week.

“We know that Pension Credit can be a lifeline to those on low incomes, and we are continuing to urge all pensioners who think they might be eligible to apply.”

The Treasury was contacted for comment.

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