Starmer expected to announce £2bn welfare concessions sparking tax rise fears

Independent

2 days ago

Sir Keir Starmer is expected to announce major concessions on his controversial welfare cuts as concerns grow the government will need to raise taxes in order to pay for the dramatic climbdown.
After a day of crisis talks with rebel Labour MPs, The Independent understands the prime minister has agreed to water down his package of reforms, including protecting PIP payments for all existing claimants, meaning only new claimants would be subject to tougher rules.
The concessions could shave up to £2bn off the £5bn worth of planned savings from the bill, and follow Downing Street refusal to rule out tax rises for any changes.
More than 120 Labour MPs signed an amendment that would effectively kill the welfare cuts off, piling pressure on the prime minister to back down amid fears his bill could be defeated at its second reading next week.
Asked whether the government accepts that it would be forced to hike taxes if it waters down the legislation earlier on Thursday, the prime minister's official spokesperson said ministers wanted to get the changes 'right', adding that the chancellor would take tax decisions 'in the round in the future'.
The row comes as top economists warned that failing to pass the reforms would wipe out Rachel Reeves's financial headroom ahead of her Budget this autumn, meaning a tax rise or cuts to spending elsewhere would be needed to plug the gap.
Tory leader Kemi Badenoch said Sir Keir was in the "fight of his life", after the former Labour cabinet minister David Blunkett warned that if his welfare plans were rejected, Sir Keir would face a confidence vote.
With tensions running high, there were reports of MPs in tears after discussions with advisers from No 10.
Sir Keir insisted on the need for the reforms on Thursday, warning benefits claimants were 'failed every single day' by a 'broken system' but admitted Labour MPs want to see 'reform implemented with Labour values of fairness'.
However, rebels told The Independent that any concessions would have to be wide-ranging if they were to be accepted.
Currently, the plans set to be voted on this Tuesday restrict eligibility for Personal Independence Payments (PIP), the main disability payment in England, and limit the sickness-related element of Universal Credit (UC). The government hopes the changes will get more people back into work and save up to £5bn a year.
Existing claimants will be given a 13-week phase-out period of financial support, a move which had been seen as a bid to head off opposition by softening the impact of the changes, before this week's revolt erupted.
The rebellion comes at a time when Labour MPs are growing increasingly critical of the prime minister's attendance in the Commons, with him having voted less in his first year so far than any of his predecessors up to Sir Tony Blair – while forcing his backbenchers into the Commons to take part in tough votes.
Labour MP Rachael Maskell, formerly a member of the Commons health and social care committee, told The Independent the government would have to agree to a multitude of changes if they were to win back support.
She said: '[Ministers would need to] ... agree a consultation with disabled people, they would need to end cuts to PIP without first replacing this with a fairer system and they would need to not cut Universal Credit, as this still leaves disabled people worse off, as they have significantly higher living costs. Scope [charity] has evaluated this to be over £1,000 a month.'
Another Labour MP said the only solution the government could offer was to pull the bill in its entirety and warned that MPs were unlikely to accept much less.
"I'm not going to support anything that will put disabled people into hardship,' they said. 'The government have just not been listening. It didn't need to get this far and the fact that it has is just pretty tin-eared to be honest.
'No 10 sees MPs as irritants and fodder. The disrespect that comes out of there... We're all working hard and this is how they treat us. It goes back to the point about how arrogant and out of touch they are."
Another Labour MP said parts of the plans were 'unacceptable' and called for 'investment first', to get people access to mental health professionals or off UC and into work, before the cuts were implemented.
Meanwhile, the National Institute of Economic and Social Research (NIESR) think tank warned that without passing the reforms, chancellor Rachel Reeves would be forced to raise taxes or cut other spending to meet her self-imposed borrowing rules.
Senior economist Ben Caswell said: 'More considered policy could help reduce political churn and the associated economic cost, particularly when consumer and business confidence is already low.'
But Scottish Labour leader Anas Sarwar was optimistic the welfare bill would look different by Tuesday's vote, as a third of all Scottish Labour MPs are backing the rebel amendment.
Mr Sarwar told the Holyrood Sources podcast: "The bill's not going to look the same... Legitimate concerns should be addressed. We have to support the principle of the reform."
But during a speech on Thursday Ms Badenoch suggested the Tories would go even further than Labour, promising to slash £9bn off the welfare bill.
She called for a 'fundamental rethink about which conditions should qualify for long-term financial support' saying that a focus on those with 'really severe conditions' would allow the government to save money.
'That's where we should be focusing our efforts,' she said. 'I know it won't be easy. In fact, things are likely to get worse, before they get better.'
Earlier on Thursday, trade minister Douglas Alexander claimed that both ministers and the rebels agree that 'welfare needs reform and that the system is broken' and that the disagreement was over the 'implementation to those principles'.
Asked about concessions, Angela Rayner, the deputy prime minister, sought to reassure backbenchers that they would not be expected to betray Labour's traditional values.
"I haven't changed my Labour values and we're not expecting our benches to do anything that isn't in check with them,' she said in an interview on ITV's Peston programme.
"What we want to do is support people, and that is the crucial bit around these reforms of what Labour are trying to achieve, and we're discussing that with our MPs."