UK Risked Run on Pound If Fuel Subsidy Had Stayed, Labour Says

(Bloomberg) — Britain would have faced a run on the pound, higher interest rates and an economic crunch had Chancellor Rachel Reeves not scrapped a winter fuel payment for 10 million pensioners to fill a hole in the public finances, House of Commons Leader Lucy Powell said.
Speaking to broadcasters on Sunday, she appeared to draw a link between Labour’s inheritance and the crash caused by former Prime Minister Liz Truss, whose disregard for fiscal prudence two years ago caused a gilt market collapse and soaring mortgage costs.
Reeves’ decision to means-test the benefit, which is worth up to £300 per pensioner over the coldest months, saves £1.4 billion ($1.8 billion) this year and was the most controversial element of £5.5 billion in cuts she announced in late July.
Powell said there was “no alternative” because Reeves had discovered a “huge additional black hole for this current financial year, borrowing higher than anybody understood.” 
Reeves unveiled the spending cuts after identifying £21.9 billion in undeclared overspending inherited from the Conservative government, a claim disputed by the Tories.
“If we hadn’t taken some of these tough decisions we could have seen a run on the pound, interest rates going up and crashing the economy,” Powell told Times Radio. UK government borrowing costs have risen since Labour’s landslide win, signaling concern in markets.
Reeves and Prime Minister Keir Starmer are under pressure from Labour party members over winter fuel payments and are likely to face angry questions on the issue this week when Parliament’s summer recess ends.
James Meadway, a former Labour party adviser, said on X: “There would not have been a run on the pound if the government had decided against freezing a few more pensioners to death this winter. It’s £1.4 billion from a budget of £1,200 billion.” 
The Liberal Democrats, the UK’s third-largest party, and the Tories have called for a vote in parliament.
It’s an unwelcome distraction for the government as lawmakers return to work this week. Labour has a full agenda, having had little legislative time since winning the general election in July.
It wants to push forward on planning reforms and changes to workers’ rights as Reeves builds up to the budget on Oct. 30, which she is warning will be “painful.” 
Optimism in the UK has plummeted among company bosses, who fear tax increases at the budget on top of tighter employment laws, according to a survey by the Institute of Directors over the weekend.
Secretary of State for Housing, Communities and Local Government Angela Rayner, who is leading on reforms to workers rights and planning, takes questions today. She may also respond to a call from the Local Government Association for the Treasury to lift the 5% cap on council tax rises to ease budget pressures. Reeves will address parliament on Tuesday.
The start of parliamentary business will also heat up the Tory leadership race. Six Conservatives are vying to succeed Rishi Sunak as leader, with a first vote among Tory MPs on Wednesday to whittle the candidates down to four.
Kemi Badenoch, the shadow communities secretary, and Shadow Home Secretary James Cleverly will deliver speeches on Monday as they gear up for Wednesday’s potential knock-out vote. 
Badenoch, the bookmakers’ favourite, will call for “renewal” of the Conservative party. “If the Conservatives want to become worthy of the British people’s trust again, we can’t just sit around pointing out how terrible Labour are … fun as it is,” she plans to say.
Cleverly will argue for a smaller state, based on a “family-first society” that gives younger people a stake. He wants a state that does “fewer things very well, not everything badly.”
“An unstable world, global migration and a crisis of confidence in capitalism. We must get our act together to provide the Conservative solutions to these problems,” Cleverly plans to say, according to pre-released excerpts. “The solutions of the left don’t and won’t work.”
The next Conservative leader, the party’s sixth in eight years, will be chosen in November.
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