LONDON 

Britain's Treasury chief on Wednesday warned that the upcoming October budget will require "difficult decisions on tax, spending, and welfare" as the government grapples with a significant financial shortfall.

The comments by Rachel Reeves, chancellor of the exchequer, come amid growing controversy over plans to scale back winter fuel payments for pensioners, a move that has drawn criticism from both opposition parties and Labour's own ranks.

The housing and planning minister, Matthew Pennycook, defended the policy to limit winter fuel payments to only the poorest pensioners in England and Wales. The proposal, which faced a Commons vote on Tuesday night, saw dozens of Labour MPs abstain.

However, a Conservative motion to block the changes was defeated by a vote of 348-228.

Pennycook acknowledged the concerns raised by many of his colleagues but stood firm on the government's decision. "We're not going to water down that policy. We think it's the right decision to make," he said.

Reeves also defended the cuts, attributing them to the need to address the "black hole" in public finances. "I did not want to strip winter fuel payments from millions of pensioners," she said, "but the reality is that we must make difficult decisions to stabilize the economy."

Her remarks came as new data revealed that the UK economy had flatlined in July for a second consecutive month, heightening concerns over sluggish growth.

Speaking to broadcasters, Reeves said: "I've been really clear that the budget on 30 October will require difficult decisions, but the prize – if we can bring stability back to our economy – is economic growth, good jobs, and decent wages in all parts of our country."

The winter fuel allowance, long a cornerstone of support for pensioners during the colder months, is expected to be restricted to only the lowest-income households under the new policy.

Many within Labour have expressed unease at the change, with several MPs opting to abstain from Tuesday's vote in protest. However, both Reeves and Pennycook have maintained that the policy is necessary to address the financial challenges the country faces.

With the economy struggling to gain momentum, Reeves is under pressure to craft a budget that balances the need for fiscal responsibility with public demand for continued social support.