Starmer can’t afford to U-turn on winter fuel payments – and besides, it might just pay off

On the face of it, the decision to remove the £300 winter fuel allowance from millions of poor-ish pensioners, as well as some rich ones, was a political blunder by Rachel Reeves.

Whether there really is a £22bn “black hole” in the public finances or not, this particular reform to the social security system will only raise £1.6bn – useful but not decisive.

In the context of a welfare bill of about £260bn, and total public spending running at £1,200bn (ie £1.2 trillion), it seems to be almost masochistically designed to yield the greatest political damage for the least fiscal reward.

The timing – coinciding with bumper pay rises for junior doctors and train drivers, and generous overseas aid funding to mitigate climate change – has gifted the Tories and Reform UK some handy attack lines. It has split the parliamentary party, riled the unions and wound up the Labour membership. All those freshly minted loyal Labour backbenchers must wonder what they did to deserve this – especially when the 10,000 to 15,000 upset pensioners in their marginal constituencies exceed their parliamentary majorities. No wonder Keir Starmer’s approval ratings have collapsed.

Still, optimism is one of the keys to political success in adversity, and there are actually sound reasons to believe that Reeves and Starmer will not only not be sunk by this early move but may actually turn it to some advantage.

Yes, it was a blunder, for all the reasons cited, and the necessary fiscal action should have been taken in the wider context, and at Budget time; the markets would surely have forgiven a few weeks’ delay if the determination to fix things was evident, and the Bank of England and the Office for Budget Responsibility are on side. Talk of a run in the pound was wildly overdone.

The calculation that it will all be forgotten by the next election is also flawed; it has hurt, and if we experience a cold winter then Labour ministers can expect to be blamed for seasonal deaths from hypothermia. Yet, all of that damage will be limited and indeed more than reversed if the tactical errors of the last few weeks are remedied by strategic success.

The most important thing is that these sacrifices – including the tax hikes to come – are not being made in vain. Prudence needs a purpose. If the promised improvements in public services, such as the NHS, come through visibly and tangibly, then that will go a long way to alleviating the damage. If the public finances are indeed placed on a stable and sustainable footing, then that will see interest rates gradually slide down without provoking another wave of inflation.

And – the biggest “if” – if economic growth does pick up, chances are that real wages and living standards across the economy will also improve. It will all be fairly modest but proof that “strong and stable” government that takes difficult decisions brings the longer-term benefits Labour promised at election time.

The final proof of that would be the Budgets that Reeves delivers in 2028 and 2029. With the fiscal headroom her prudent and responsible decisions have created, she would be able to restore the winter fuel allowance, as well as having delivered year-on-year real terms increases in the real value of the state pension. She might also be able to relax the two-child limit in child benefit, and maybe even cut national insurance by a penny or two in the pound.

Although Margaret Thatcher’s portrait is no longer looming over him in Downing Street, Starmer might also reflect that the fiscal trajectory of her first administration bears some resemblances to his own plans. After all, she too reformed pensions by cutting the link to earnings in 1980, took many other “tough” decisions, faced down internal opposition, and endured disastrous poll ratings until the economy, public finances, inflation and interest rates were all heading in the right direction by the 1983 election, which she won handsomely. Those domestic factors were more important than the Falklands victory.

Strong leadership paid off, and she too had the great electoral advantage of a split opposition. Maybe Starmer has somehow already taken, as if by osmosis, some inspiration from her early record in power.