Chancellor Rachel Reeves has received a boost of up to £10billion ahead of the Budget prompting calls to re-think plans to cut the winter fuel allowance.

Members of the Bank of England’s Monetary Policy Committee (MPC) have said Threadneedle Street will shrink its balance sheet by carrying out £100bn of quantitative tightening (QT) over the next 12 months.

The BoE policymakers’ decision to slow the sale of UK government bonds means the Chancellor has up to £10bn of headroom ahead of October’s Budget, reducing the need to cut spending and impose hefty tax hikes.

Rachael Maskell, Labour MP for York Central, said the Government should “absolutely” review its decision to cut the winter fuel allowance for millions of people after the Bank of England’s decision.

She told The Times: “It’s a responsible decision if they have got additional funding. I think there are many demands, but this is most urgent to keep people safe this winter.

“We’ve got to do everything we can to keep people warm. I would welcome the Government delaying so they can properly review this decision and put mitigations in place to keep people safe.”

A reverse of quantitative easing (QE), QT sees central banks decreasing the supply of money by cutting the assets on their balance sheets by selling them on financial markets.

Threadneedle Street will be drastically reducing bond sales to £13bn, with the remaining £87bn coming from bonds where the proceeds won’t be reinvested when they mature.

The BoE was the first central bank to start selling bonds in 2022 with the aim of shrinking the size of its balance sheet in the wake of its QE splurge after the financial crisis, Brexit and Covid pandemic.

Bond selling means the Bank suffers losses given gilts have dropped in price amid recent interest rate hikes. Such losses are covered by the Treasury, hampering Government plans to bring down Britain’s debt ratio.

So far this year the Government has transferred £23.6bn to the BoE to cover these losses.

With fewer active sales over the next 12 months, the Treasury won’t have to transfer as much money to the Bank, to the delight of the Chancellor.

However, Ms Reeves faces a fresh headache ahead of the Budget after official figures revealed Government borrowing jumped by more than expected last month.

Borrowing rose to £13.7bn last month, marking the third highest August on record, driven by higher spending on public services due to increased running costs and pay increases.

The increase means public sector debt hit 100 percent of gross domestic product (GDP) at the end of August 2024.

That figure, which excludes public sector banks, means national debt is at levels last seen in the early 1960s, the Office for National Statistics (ONS) said.

ONS chief economist Grant Fitzner said: “Borrowing was up by over £3 billion last month on 2023’s figure, and was the third highest August borrowing on record.

“Central Government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”

Public sector borrowing was £3.3bn more than in August last year, according to the ONS. August’s total was also more than the £11.2bn forecast by Britain’s official forecaster and more than the £13bn most economists were pencilling in.

Chief Secretary to the Treasury Darren Jones said: “When we came into office, we inherited an economy that wasn’t working for working people.

“Today’s data shows the highest August borrowing on record, outside the pandemic. Debt is 100 percent of GDP, the highest level since the 1960s.

“Because of the £22bn black hole in our public finances we have inherited this year alone, we are taking the tough decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off.”