Rachel Reeves has scrapped some winter fuel payments, along with a raft of other government programmes and policies to plug a projected government overspend of £22bn.
The chancellor said those not in receipt of pension credit will no longer receive the extra money as she repeatedly told MPs: “If we cannot afford it, we cannot do it.”
The chancellor also announced that adult social care charging reforms, which had been delated by the previous government, would also not go forward on the new government’s watch, in a move that will save more than £1bn by the end of next year.
In total, all departments have been expected to find savings worth an estimated £3bn, Ms Reeves said, while a number of projects – including Boris Johnson’s programme to build 40 new hospitals and to restore old railway lines – will be cancelled.
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The chancellor laid blame for her decisions on the previous government, accusing the Conservatives of having “let people down” by making “commitment after commitment without knowing where the money was going to come from”.
“Today I am calling out the Conservatives’ cover up and I am taking the first steps to clean up what they have left behind,” she said.
Shadow chancellor Jeremy Hunt, sitting opposite Ms Reeves’ in the Commons, immediately refuted her characterisation of the previous government, saying: “She will fool absolutely no one with a shameless attempt to lay the grounds for tax rises.”
Ms Reeves said the decision to scrap winter fuel payments for some pensioners was a “difficult” one she did not want to make.
“This level of overspend is not sustainable,” she said.
“Left unchecked, it is a risk to economic stability and, unlike the party opposite, I will never take risks with our country’s economic stability.”
Ms Reeves said that while the government would continue to protect the pension triple lock – the measure to raise state pensions every year by the level of average earnings, inflation or 2.5% – she said those “not in receipt of pension credit or certain other means-tested benefits will no longer receive the winter fuel payment from this year onwards”.
She said the government would however continue to provide winter fuel payments worth £200 to households receiving pension credit or £300 to households in receipt of pension credit with someone over the age of 80,.
“Let me be clear, this is not a decision I wanted to make, nor is it the one I expected to make – but these are the necessary and urgent decisions that I must make,” she argued.
Ms Reeves’ statement came after the news that junior doctors had been offered a 22.3% pay rise by the government to end strike action.
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Over the past few days, ministers have sought to suggest the economy they inherited from the Conservatives is worse than expected, despite the Institute for Fiscal Studies thinktank warning about the bad state of public finances during the election campaign.
Ahead of Ms Reeves’s speech, cabinet minister Pat McFadden told Sky News: “What we have discovered since taking office a few weeks ago is things were even worse than we thought and the previous government was certainly guilty of running away from the situation.”
He gave the example of the Rwanda scheme, previously estimated to cost £400m.
“We have now found that it is £700m, with billions more to be spent in future,” Mr McFadden said of the now cancelled scheme.
He also suggested the IFS and other analysts would “have to today like everybody else acknowledge that the budgetary pressures this year are higher than those set out in the OBR [Office for Budget Responsibility] forecast before the March budget”.
But shadow transport secretary Helen Whately said Ms Reeves “would have known about the state of the public finances” while serving in opposition because of the OBR.
The Tory MP said: “Actually, while Labour is going out there and trying to tell everybody that it is all so difficult for them, this is just them setting a narrative for tax rises that they want to bring in later on.”
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