Budget will need difficult tax, welfare and spending decisions, Reeves warns

October’s budget will require “difficult decisions on tax, spending and welfare”, the chancellor, Rachel Reeves, has warned.

Her comments came as the housing and planning minister, Matthew Pennycook, said plans to scale back winter fuel payments for pensioners in England and Wales would not be watered down, after dozens of Labour MPs abstained on a key Commons vote on Tuesday night.

Reeves also defended cutting winter fuel payments for all but the poorest pensioners as the “right decision”, as she spoke to broadcasters on a day when new figures showed the UK economy flatlined in July for the second month in a row.

“I’ve been really clear that the budget on 30 October will require difficult decisions on tax, on spending, and on welfare,” she told the BBC. “But the prize – if we can bring stability back to our economy, if we can bring investment back to Britain – is economic growth, good jobs, paying decent wages in all parts of our country, to realise the huge potential that we have.”

Reeves said she had not wanted to strip winter fuel payments from millions of pensioners but was forced to by the “black hole” in the public finances.

Meanwhile, Pennycook defended the government’s policy on the winter fuel allowance the morning after MPs voted to remove it from all but the poorest pensioners.

A Conservative motion to strike down the move was defeated by 348 votes to 228.

Pennycook said he appreciated the concerns many colleagues had raised, but added: “We’re not going to water down that policy. We think it’s the right decision to make.”

Related: ‘They’ve robbed us’: UK pensioners on losing the winter fuel payment

Asked about the government’s decision to award pay increases to public sector workers while reducing winter fuel support, he told Sky News: “What this government has done is implement the recommendations of the independent public sector pay review bodies. Now, unless the opposition in parliament are saying they would have rejected those recommendations out of hand, allowed industrial action to continue, which was extremely costly to the UK economy, they would have faced that same decision.”

MPs voted to reject the Conservative motion on Tuesday by a majority of 120, with about a dozen Labour MPs thought to have deliberately abstained and one, Jon Trickett, voting against.

The veteran MP was joined by five of the seven Labour MPs who were suspended after voting to scrap the two-child benefit cap: Ian Byrne, Apsana Begum, Zarah Sultana, Richard Burgon and John McDonnell.

Burgon said on X: “For me, this was a matter of conscience. This cut is not only going to cause even greater hardship for so many pensioners in my constituency who are already living in poverty, but it will also cost lives.”

However, it will be the high number of abstentions that will worry Downing Street and Labour whips, with the government trying to use the debate to reiterate its argument that removing the winter fuel allowance from all but older people who receive pensioner benefits such as pension credit was a tough but unavoidable choice.

Among those who abstained after giving speeches was Rachael Maskell, the MP for York Central, who has been one of the most outspoken Labour critics of the plan and called for it to be delayed and rethought.

Pensioners, she said, “make the hardest budgetary decisions, harder than those of the Treasury, where there are choices. They have no choice. They have to put a roof over the head, they have to pay for their food, and they have to pay for their heating”.