The new Labour Government is, with every day that passes, looking ever more like a miserly householder gripping their money in both hands and holding it tightly into their chest.

Its decision to means-test the winter fuel payment for pensioners, with about 10 million losing this help with electricity and gas bills as a result, looks like a classic example of the small-mindedness of Prime Minister Sir Keir Starmer’s administration when it comes to the public finances.

Labour has made this decision with the expectation of saving £1.3 billion in the current fiscal year to March and around £1.5bn in subsequent years - drops in the ocean when it comes to public spending.

In many ways, the decision seems staggering. Household electricity and gas prices in the UK remain excruciatingly high. And it is surprising to see a Labour Government take such an important payment away from so many pensioners.

READ MORE: Labour landslide but Keir Starmer boxed in on economy

In this regard, it was not surprising to see what looked like a mini-rebellion by some Labour MPs on the winter fuel payment move in the House of Commons yesterday, although the Conservatives’ motion to block the withdrawal of this help from millions of pensioners was comfortably defeated.

What makes Labour’s move on the winter fuel payments far less surprising is that the new Government has shown the same tunnel vision as the Conservatives did before on the UK public finances.

In particular, the Labour Government appears to be, like the Tory administrations before it, obsessed with only the cost line. It has even bound itself with the Conservatives’ fiscal rules.

It seems to not realise the true importance of generating economic growth and tax revenues. And it appears to fail to grasp the simple reality that boosting receipts in this way would actually ease pressure on the public finances.

To put the projected £1.3bn saving in 2024/25 in context, it is less than 4% of the £33.5 billion a year which the protracted freezing of income tax thresholds by the UK Government is expected to raise in 2028/29. These thresholds have been frozen since 2022/23. And, given the UK’s inflation crisis, this move to freeze thresholds rather than increase them in line with inflation is already in the current fiscal year raising tens of billions of pounds.

READ MORE: Ian McConnell: Starmer hopeless on Brexit as overtures hit bum note

The House of Commons Library noted in a research briefing published on August 1: “The impact of the tax thresholds freezes has been analysed by the OBR (Office for Budget Responsibility) in multiple economic and fiscal outlooks since the first announcement in the 2021 Spring Budget. In terms of income tax, the latest estimate is that the freeze of income tax thresholds will raise over £33.5 billion a year in 2028/29.”

In terms of what has been happening with electricity and gas prices, the Labour Government should have been well aware before its late July announcement of its planned withdrawal of winter fuel payments from millions of pensioners that household fuel bills were set to rise sharply from October 1.

Analyst Cornwall Insight had long before that announcement by Labour been forecasting a rise that chimed with what was eventually announced, having observed wholesale market prices and applied the formula for the regulatory energy price cap.

And regulator Ofgem duly announced on August 23 that there would be a 10% rise in the cap from the start of next month.

It is difficult to conclude other than that the UK’s energy price cap is deeply flawed but it most certainly dictates what households pay for their energy. Attempts to have strong competition in the market look to have failed miserably.

 

Ofgem said that, for the period from October 1 to December 31, the energy price cap was being set at £1,717 per year for a typical household using electricity and gas and paying by direct debit.

The regulator noted this represented an increase of around 10%, compared with the cap of £1,568 set for the July 1 to September 30 period.

This is obviously a particularly difficult time of year for households to face such a big increase, given we are heading towards the colder weather when demand for heating becomes much greater, particularly for pensioners who generally spend more of their time at home.

As highlighted in a briefing published by the House of Lords Library earlier this month, people not in receipt of pension credit or “certain other means-tested benefits” will no longer receive winter fuel payments.

READ MORE: Ian McConnell: Make no mistake - this is no 1997 for Labour

This briefing observes: “Since 1998 the payment has been given to everyone in receipt of the state pension regardless of their other income. The Government has said it has had to make some ‘difficult decisions to fix the foundations of the economy due to the dire state of the public finances’.”

Interestingly, more people might now move to claim pension credit, thereby wiping out much of what the new Government hopes to gain by withdrawing the winter fuel payment from millions of people.

The payment amounts to £200 or £300 for people born before September 23, 1958.

The huge controversy over Labour’s move on winter fuel payments is no surprise at all, particularly given just how expensive household gas and electricity is in the UK.

Electricity in the UK was more expensive than in any country in the European Union in the second half of last year, according to data from Eurostat and the Department for Energy Security and Net Zero.

And analysis of the energy price caps under Ofgem’s mechanism shows just how high household fuel bills are relative to only a few years ago.

So how does the £1,717 figure for the price cap prevailing from October 1 this year compare with the position before the UK’s household energy crisis unfolded?

In the six months from October 1, 2021, when the cap was set half-yearly rather than quarterly, the energy price cap based on typical consumption at that time was £1,277. This was, it is important to realise, a record high at that point. It will from October 1 this year be more than 34% higher than this.

Between April and October 2021, the energy price cap was £1,138. And, in the six months prior to that, it was £1,042.

Although the price cap was at £4,279 between January and March 2023 and at £3,280 between April and June that year, assistance from the UK Government meant the cost of electricity and gas for a typical dual fuel household was £2,500 per annum. The same was the case between October and December 2022, when a £3,549 price cap was in place.

READ MORE: Scottish hotel on which 'monies lavished' for sale

Of course, it is crucial to realise that the price-cap mechanism is absolutely not fit for purpose. All that you need to do to realise this is look at the cost of household electricity and gas in the UK in absolute terms, and how the price cap has risen since autumn 2020.

The general noise around the price of household electricity and gas might have diminished from the crescendo reached in the summer and autumn of 2022, when the Conservative Government stepped in to provide albeit inadequate support for all households.

However, the effect on many millions of households of exorbitant fuel bills is still excruciating. This impact is, of course, being felt by millions of pensioners.

And we should not forget the cumulative effect on people of having to pay sky-high energy bills for years now, with many having found themselves in debt to the electricity and gas suppliers.

Against this backdrop, it is truly astounding that Labour should remove from millions of pensioners who no longer qualify for the winter fuel payment the modest degree of mitigation this provided in the UK’s broken household energy supply system.