Starmer ditches Pip benefit reforms in face of Labour revolt
The move will cause a headache for Chancellor Rachel Reeves, who has seen a forecast £4.8 billion saving from the welfare budget whittled away through a series of concessions, leaving her to seek extra money through spending cuts, tax hikes or borrowing to balance the books.
The Resolution Foundation's chief executive Ruth Curtice said the concessions meant the reforms would now make no 'net savings' in 2029/30 – a key year for Ms Reeves's fiscal targets – even if they did reduce costs in the longer term.
The decision to remove the Pip changes from the Universal Credit and Personal Independence Payment Bill was announced just 90 minutes before MPs voted on Tuesday night.
The legislation cleared its first hurdle by 335 votes to 260, majority 75.
Despite the late concession, there were 49 Labour rebels, the largest revolt so far of Sir Keir's premiership.
Work and Pensions Secretary Liz Kendall insisted the Labour Party was '100%' behind the Prime Minister, but acknowledged there were 'lessons to be learned' after the rebellion.
She also appeared to express regret over the handling of the issue, saying: 'I wish we had got to this point in a different way.'
But Ms Kendall also insisted it was 'really important we passed this Bill', saying: 'We need to make changes, because too many people have been written off, are left to a life on benefits, when being in good work is so important.'
The decision to remove key parts of the Bill is remarkable for a Government with a working majority of 165 and after just under a year in office.
Tory leader Kemi Badenoch accused ministers of 'utter capitulation' and said the legislation was now 'pointless'.
She said: 'They should bin it, do their homework, and come back with something serious. Starmer cannot govern.'
Earlier, a Labour rebel attempt to halt the legislation was defeated by 179 votes.
A total of 44 Labour MPs including two tellers backed the bid by rebel ringleader Rachael Maskell, who described the Bill as 'unravelling' and 'a complete farce'.
A previous effort to kill the Bill had attracted more than 120 Labour supporters, but was dropped after the first partial U-turn on the legislation last week, which restricted the Pip changes to new claimants from November 2026.
That date has now been abandoned in the latest climbdown, with any changes now only coming after disability minister Sir Stephen Timms' review of the Pip assessment process.
Sir Stephen announced the climbdown in the middle of the debate on the legislation.
He acknowledged 'concerns that the changes to Pip are coming ahead of the conclusions of the review of the assessment that I will be leading'.
He said the Government would now 'only make changes to Pip eligibility activities and descriptors following that review', which is due to conclude in the autumn of 2026.
The concession came after frantic behind-the-scenes negotiations in Westminster involving the Prime Minister, his Cabinet and wavering Labour MPs.
Charlotte Gill, head of campaigns and public affairs at the MS Society, said: 'We thought last week's so-called concessions were last minute. But these panicked 11th hour changes still don't fix a rushed, poorly thought-out Bill.'
But Jon Sparkes, chief executive of learning disability charity Mencap, said: 'The last-minute change relating to the review Sir Stephen Timms is leading sounds positive and we are pleased that the Government has listened.'
He added: 'Disabled people should not have to pay to fix black holes in the public finances.'
The Government's concessions have gutted the reforms, leaving only parts of the current Bill still on the table.
Proposals to cut the health element of universal credit by almost 50% for most new claimants from April 2026 remain in place, along with an above-inflation increase in the benefit's standard allowance.
In an earlier climbdown, Work and Pensions Secretary Ms Kendall said existing recipients of the health element of universal credit, and new claimants with the most severe conditions, would have their incomes 'fully protected in real terms'.
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New Statesman
18 minutes ago
- New Statesman
From the archive: Reality: a charter for avoidance
Photo by Maurice Hibberd/Evening Standard/) In 1979 Mervyn King, later governor of the Bank of England from 2003 to 2013, argued that the British state was too dilapidated to deal with a modern economy. Labour had been complaisant, but the Tories resisted reform. 'In this world nothing can be said to be certain, except death and taxes.' It is hard to reconcile Benjamin Franklin's words with the experience of taxation in post-war Britain. Tax rates switch with bewildering frequency, and rarely do more than a few months go by without some kind of tinkering being done upon the system itself. Margaret Thatcher is basing her campaign upon the firm promise – one of the few she has made – that the immediate effect of her victory would be another – downward – shift in the rate of income tax. Indeed, Tory policy for the past few years has concentrated unflinchingly upon disseminating the myth that Britain is a heavily-overtaxed country. But at the same time the Tories have set themselves against any energetic attack on the real evils of our tax system: which are its astonishing complexity and incoherence, its lack of efficacy when dealing with company revenues, and its bias in favour of established, hereditary wealth. Not that it can be said that Labour has made, or credibly promised, any of the reforms that are urgently required. Whichever party policy is examined, uncertainty – even arbitrariness – seems likely to be the future of taxation in Britain. The system that we have is the product of innumerable ad hoc changes, few if any of which were based on any coherent view of the underlying structure they were supposed to improve. The state into which our system has drifted shows that further minor modifications to the status quo will not bring us any nearer to the objective of a reasonably efficient, fair and stable tax system. Yet no government which is concerned with the most efficient way of financing public spending, and which cares about how the tax burden is distributed, can afford to be without a coherent tax policy. Anyone analysing the system for the first time must view it in amazement – with its separate taxes on different kinds of income, each tax having its own rules and methods of administration. In addition to income tax, there are distinct and separately administered surcharges on employment income (in the form of national insurance contributions), on investment income (in the form of investment-income surcharge) and on self-employment income (in the form of special national insurance contributions for the self-employed). The methods of calculating liability differ in each case. At the lower end of the income scale, interaction between the tax system and the maze of different means-tested benefits can give rise to tax rates of well over 100 per cent on each marginal addition to income – the notorious 'poverty trap'. A good example of the unhappy effects of the ad hoc approach occurred last year, in Chancellor Healey's treatment of capital gains tax. Inflation means that real capital gains can be much less than nominal capital gains, but our system taxes nominal gains: the reverse of what a well-designed income tax should do. One remedy proposed was 'tapering relief', under which the tax rate would be lower the longer the asset had been held: another was index-linking, to ensure that tax would fall solely on real gains. Mr Healey rightly rejected 'tapering'' as economically absurd and administratively complicated. And he rejected indexation, on the proper grounds that it would be wrong to index-link capital gains without doing so for other forms of capital income, such as building-society interest. But he rejected the logic of his own argument, which was that if inflation created a problem (clearly it did) then indexation should be introduced across-the-board, And if it did not, there was no case for giving special treatment to capital gains. What the Chancellor actually did (and it scarcely fits with the image of a Chancellor 'making the pips squeak') was merely reduce the rate of capital gains tax: so that the first £1,000 of gain is exempt altogether, and gains up to £5,000 in a year pay a maximum average of only 12 per cent. The marginal rate then jumps to 50 per cent, before falling to 30 per cent on gains above £9,500. This is a curious rate schedule, to say the least. Its design has nothing to do with the incidence of inflation: it appears to be merely a device for buying time until the government can think of something more sensible to do, or until inflation disappears, or until people stop worrying about it. Such pragmatism, lacking any base in underlying principles, leads to complexity, excessive cost, and the loopholes and anomalies on which the tax avoidance industry thrives. It is this allegedly practical, but actually impractical, approach which has produced an accumulation of legislation like a patchwork quilt coming apart at the seams. Subscribe to The New Statesman today from only £8.99 per month Subscribe Although neither the Conservative manifesto nor the Labour one faces up to the issue, there certainly are reforms which could be instituted – at the cost of upsetting the status quo. But before looking at such proposals, it is necessary to describe the real, as against the imagined effect of taxes in Britain. The redistributive elements in the system rely largely on high tax rates on earned income, although variations in earnings are no longer (if they ever were) the major source of inequality. The main sources of wealth are inheritances and capital gains – including those from building-up and selling a business – and effective tax rates on income from capital are lower than on employment income, because those taxes are easier to avoid. The attempt to impose very high tax rates on earned income gives rise to a proliferation of fringe benefits which are not only a less efficient method of rewarding managers, but serve to increase the visibility of differentials. Employees might find it easier to accept that senior staff should receive larger salaries than that they should get longer holidays, more lavish working conditions, private medical insurance, special dining rooms and use of company cars. According to the Diamond Commission 94 per cent of senior managers in 1975 had personal use of a company car, and a system under which executives are twice as likely to get a free car than receive bonus payments is one which emphasises status rather than performance. The argument against the highest rates of tax on earned income is not that they discourage hard work (they may, though the evidence is limited). But they encourage inefficient forms of reward, and they do not achieve much redistribution. Consequently, they raise little revenue: reducing the top rate of tax on earned income to 60 per cent would cost about £250 million in a full year, much less than cutting the basic rate by one point. At the other end of the scale some five million people, nearly ten per cent of the population, are supported by supplementary benefits – with many others failing to claim the benefits to which they are entitled. Although this is a far cry from Beveridge's idea of national assistance as a final line of help for a handful of families, it can perhaps be said that concentrating help on recipients of supplementary benefit is a cost-effective form of income maintenance. The trouble is that it does not maintain the incomes of the low-paid, because those in work are not eligible for supplementary benefit. If the low-paid try to increase their earnings – by working over-time, or by changing jobs – they are apt to be little better off: this is where the combination of income tax, national insurance contributions and the withdrawal of means-tested benefits can produce marginal tax rates over 100 per cent. Income tax, national insurance contribution and Family Income Supplement alone imply a marginal rate of between 80 and 90 per cent, and at the beginning of last year there were 100,000 families getting Family Income Supplement, and there is a myriad of other means-tested benefits like rent and rates rebates. It is immensely difficult to calculate the implicit marginal tax rates which are produced, and if families could work them out (which is unlikely) many would be very depressed. There are a good many wage-earners who would be better-off if they could arrange to be sick, or unemployed, for a part – but only a part – of the tax year. (This does not apply to the long-term sick and unemployed, who are unjustly given lower rates of assistance than those whose misfortune is temporary.) The strange situation has two causes: first, sickness and unemployment benefits paid in lieu of taxed earnings are not themselves taxed; second, child benefits for those in work are less generous than those for people out of work. It is hardly likely that many people are able to contrive short periods of unemployment so as to maximise net income. But the fact that such anomalies exist – with their true nature being poorly understood – makes it easy to whip up resentment against 'scroungers', as the tabloid press has not hesitated to do, thus making it harder to persuade the average wage-earner to meet the cost of adequate benefits for those in need. Sickness and unemployment benefits could be taxed – thus providing revenue to improve benefits for the longterm unemployed – provided there were administrative reforms. Chiefly, this would require the abolition of 'cumulative withholding' in the PAYE system, so that any one payment could be specifically taxed, with any necessary adjustments being made after the annual tax peter, which all taxpayers would have to make. And rapid changes in mortgage interest over the past two years have meant that cumulative withholding has been effectively scrapped for many owner-occupiers: it should be extended to other taxpayers as soon as computers can make it feasible. If anyone is not convinced of the simplifications this would bring. I suggest a look at the leaflet entitled Autumn 1977 – Income Tax Changes for 1977-78 which was sent out last year with the notices of coding for 1978-79. See if you can understand page two, which is all about mortgage interest relief – a prize for the best solution. Some reforms have been made: from this month, child tax allowances and family allowances are replaced by a single child benefit, amounting to £4 per week for each child, with an additional £2 for the first child in some one-parent families. Further reductions in the gap between child support given to the employed and the unemployed could be given by making an extra payment for the first child, which could be financed by abolishing the married-man's tax allowance. But investment income, and the treatment of savings, produce anomalies more striking than anything in the mythology of 'scrounging'. A top rate of 98 per cent may give an impression of penal taxation, but it is misleading. It is, of course, silly to tax anything at 98 per cent, and in reality the government does not try to. For instance, the Bank of England has designed special government stocks for high-rate taxpayers which cuts their effective tax rate to about 50-60 per cent. Capital gains are taxed lightly in comparison with investment income – particularly after last year's Budget – and this gives scope for tax advisers to dream-up wondrous schemes for converting income into capital. Failure to index the system does increase the tax burden, but the practical outcome is one in which the rate varies enormously, virtually haphazardly, from person to person and from year to year. Three forms of personal saving receive especially favoured treatment: investment in owner-occupied housing; contributions to pension funds; and life-insurance premiums. This is on the whole advantageous to middle-class families, and the three items make up the bulk of personal savings, so that the institutions which hold them dominate the capital market. Pension funds and life-insurance companies own between them nearly half of the equity capital of British companies, and their behaviour is critical to the government's ability to borrow the money that it needs. Discrimination between different types of saving involves different rules for each kind of asset, which produces the complexity on which the investment-columns of the newspapers thrive, and makes the basis of avoidance devices. The consequence of failure to apply consistent treatment to savings and investment income is that much decision-making is dominated by tax considerations, both at the personal and the industrial level – where the financing package associated with a decision is often more critical than the basis profitability of the investment being examined. What is the rationale for a system in which mergers may take place essentially for tax reasonsL in which tax advisers are more Important than engineer and export managers, and there is an incentive for valuable time to be spent on socially pointless activities. The favours given to life-insurance companies, pension funds and owner-occupiers, though taken politically for granted, are very hard to justify. They happen to suit the life-style of middle-class people with predictable career-patterns, who remain largely immobile both geographically and occupationally. The sort of person who comes to mind, in fact, closely resembles the people who construct and control the tax system. He is a civil servant, living in (say) Wimbledon: able to stay without interruption in the same owner-occupied house; travel to work by train (zero-rated for VAT): look forward to a secure and inflation-proofed pension; able to put any spare cash into a life-insurance policy which will mature at the right moment to pay school fees, and thus secure a foothold in the system for a future generation. I have absolutely no wish to discriminate against civil servants living in Wimbledon, but neither can I think of a good reason for discriminating in their favour. Given the deficiencies of our economic performance – central so much campaign rhetoric – it is odd that we should offer incentives to people in the City so that they can think up dis-incentives which work against those who move around after employment (thus wishing to rent, rather than buy a home); who disagree with staid employers (thus placing low value on pension rights) and wish to exploit new business ideas, but cannot do so because any savings they may have are locked-up in life insurance. Here we come to the argument, which will be much rehearsed in the next few weeks, which says that only a big reduction in the tax burden can eliminate the worst distortions, and 'free the spirit of enterprise from the straitjacket of excessive taxation', etc. Although a cut in rates would reduce the magnitude of the problem – depending upon what sacrifice is made in essential services – there are two large difficulties in the argument. First, as the tables show, Britain simply is not highly taxed in comparison with many of those countries which are exhibited as examples of economic success. Despite the problems of comparison, the broad picture is clear. We bear less tax than Scandinavia, rather more than America and Japan, and about the same as the West European neighbours which out perform us. Secondly, many of the problems I have described derive from the weakness of the tax base, rather than the rates which are applied. We are taxing the wrong things, and failing to tax the right things. Only a virtual elimination of direct taxation would deal with this – and the point is important in terms of the present political argument, which often proposes a shift to indirect taxation. A small shift to indirect taxation would make no impact on the inadequacies of the present tax base: to make a large shift would be to abandon any pretence of progressive taxation. I believe the only way to deal with the problem is to have a uniform treatment of income from capital, through a progressive personal expenditure tax of the kind proposed by Nicholas Kaldor in 1955, and again by the Meade Committee last year. This has not been welcomed, or even much discussed by those British politicians who are most vehement about the evils of taxation: and what they perhaps care for as little as anything is the Meade finding that the whole system could be much simpler in operation than that we have at present. It would be based purely on cash flow, eliminating the distinction between income and capital on which most of the present-day opportunities for avoidance depend. An expenditure tax would be levied directly on individuals, and by choice of rate could be made as progressive as the government of the day desired. Taxable expenditure would be receipts of cash from all sources (whether tips, or sales of shares) minus cash deposited in 'registered assets' which would include practically all kinds of saving except current accounts. PAYE would continue to be deducted at source, and the majority of taxpayers would notice little administrative change. It might be argued that such a tax favours the rich, because only the rich can afford to save. But this forgets that the rich also dis-save, and that the system we have makes little impact on spending out of capital gains and inherited wealth. Indeed, capital taxes are largely ineffective at the moment: the high exemption level means that most of the wealth transferred between generations pays a very low average rate. Even since the introduction of Capital Transfer Tax (CTT) it remains easy for a couple who are well advised to pass on more than £100,000 tax-free. For this reason, gifts and bequests made to other people should be treated as part of taxable spending: resulting in an increase of the average fax on capital transfers, without the need for self-defeating marginal rates at the top. A good example of the weakness of CTT, and of the extent to which political debate on taxation is divorced from reality, occurs in the treatment of small businesses. There is a wide range of concessions, but most of them assist the founder of the business only at the end of his or her career. The problem with small business is not that it is crushed under transfer taxes, but rather that policy fails to find ways of encouraging new firms to arise and old ones to die in peace. There is little evidence that the dynasties motive is important to innovators (it is thought important by those who have inherited themselves) and some evidence that firms perform less well when the inheritors take them over. 'Small is beautiful' makes as mindless an axiom as 'big is beautiful', which ruled the sixties. Yet already, under Labour, the 1977 and '78 Budgets have produced inexplicable concessions for small business which the Tories will find it difficult to out-do. In one year these were so enormous that the size of a business liable to CTT increased eight-fold. This change was not announced by Mr Healey, and part of it could only be detected through the omission of certain words in the Finance Bill. The truth is that the decline of small business did not occur overnight, and it cannot be corrected through such huge concessions to the owners of established concerns. Indeed, an expenditure tax is more likely to do something for small-scale industrial innovation: by facilitating personal saving, and by reversing the trend towards 'institutionalisation' of the capital market. A stock item of political debate is the idea that British industry staggers under a vast tax burden. If the personal tax system is rather a shambles, the corporate tax system is chaos enclosed in mythology, with most industrial companies paying little, if any, tax. John Kay and I found that of 20 leading UK industrial concerns, 13 paid no mainstream corporation tax in 1977, and in total only £117 million of tax was paid compared with total reported profits in 1976 of £4,276 million. The 'temporary' stock relief of November 1974 has survived almost five years, with no sign of a permanent solution. Because nothing has been announced, companies are uncertain about their tax liability, and so we have a tax which raises scarcely any revenue but yet generates economic distortions. There appears to be a complete absence of ideas about what to do. In 1974, the corporate sector was threatened with financial bankruptcy because of inflation's effect on stocks: now it is intellectual bankruptcy. The most convincing alternative would be a 'cash flow corporation tax', which would be levied on the difference between receipts from sales and outlays made for current and capital inputs. Stock relief could be abolished, inflation accounting would be for tax purposes, and distinction between different types of finance would occupy less attention. I believe that such a tax, coupled with a progressive personal expenditure tax, would redress many injustices. It would represent the first serious attempt in this country to tax spending out of inherited wealth, and to lessen the transmission of privilege from one generation to the next. The effects on the economy would, I think, be restorative. Of course, there may be other solutions which can be put forward. But if any politician suggests that major reform is less than imperative, or that what is required is to 'lighten the burden', by some ad hoc juggling with the rates, he or she is avoiding one of the central problems of present political economy. [See also: Just raise tax] Related
Powys County Times
28 minutes ago
- Powys County Times
Labour MP reintroduces bid for Hillsborough Law after campaign stalls
A Labour MP who was at the Hillsborough disaster has renewed the efforts of campaigners to introduce a 'Hillsborough Law' which would aim to prevent cover-ups after major disasters, as he accused the Prime Minister of inaction. Ian Byrne (Liverpool West Derby) was at the disaster aged 16 in 1989, which led to the deaths of 97 football fans during the FA Cup semi-final between Liverpool and Nottingham Forest at the football ground in Sheffield. The MP introduced a Public Authority (Accountability) Bill centred around a duty of candour which would force public bodies to co-operate with official inquiries and tell the truth after major disasters – or face criminal sanctions. The Government had introduced a similar Bill which was criticised by campaigners and legal experts for not having a legally binding duty of candour. It was pulled over concerns related to who the duty of candour would apply to. Campaigners fear another Bill could be reintroduced that would still be insufficient as it would not be shared with families beforehand. Mr Byrne said: 'Little did I, or anybody there that day, know that we were walking into a national disaster that would leave 97 men, women and children dead, hundreds more injured and countless families devastated for generations. 'What unfolded that day was not a tragic accident. It was a disaster caused by police failures, and compounded by one of the most shameful state cover-ups this country has ever seen.' Sir Keir Starmer was accused by Mr Byrne of breaking a pledge he had made twice on the issue. Labour had said the Bill would be passed before the latest anniversary of the tragedy in April, but that was missed. Mr Byrne said: 'In 2022, Keir Starmer stood before the people of Liverpool at the Labour Party conference and pledged, and I quote, 'One of my first acts as prime minister will be to put the Hillsborough Law on the statue book'. 'He said the same again as Prime Minister in September 2024, not a Hillsborough law, the Hillsborough Law. That pledge filled our hearts with hope, it promised an end to the culture of denial and delay and decades of deceit. And make no mistake, this today is the Hillsborough Law.' Sir Keir was asked about the issue at Prime Minister's Questions, before Mr Byrne spoke in Parliament. Labour MP for Liverpool Riverside Kim Johnson and Liberal Democrat leader Sir Ed Davey accused the Government of planning to table a 'watered-down' Bill. The Prime Minister said he had been speaking to families personally about what would come forward. 'This is a really serious issue, it is important that we get it right,' he said. 'I am fully committed to introducing a Hillsborough Law, including a legal duty of candour for public servants and criminal sanctions for those that refuse to comply. 'We will bring this forward, I just want to take the time to get it right and then put it before the House.' Mr Byrne's father was in the public gallery to see his son's Bill presented, alongside fellow campaigners for a Hillsborough law. He was seriously injured in the disaster and had to crowdfund in pubs near Anfield to raise money for the campaign. His son, who has been an MP in Liverpool since 2019, said: 'The law cannot bring back the 97, it cannot erase the decades of pain, nor undo the trauma inflicted by callous lies and institutional neglect. 'But it can stop this from ever happening again, it can give truth, a fight for justice, and restore some of the faith lost, not just in the system but in the very idea of justice. 'So today can I say loud and clear to the Prime Minister, don't let this moment slip away. Don't let your promise made in Liverpool be broken in Westminster. 'Let us honour the 97 and so many others, not just with remembrance, but with change.'
The Independent
30 minutes ago
- The Independent
Has Kemi Badenoch finally shown the killer instinct to save her as Tory leader?
Ever since Kemi Badenoch became Tory leader, her many Conservative critics have claimed she has failed to make any impact. Any number of backbenchers have been only too willing, albeit usually under the cowardly cover of anonymity, to claim she is going nowhere. Principal among their complaints is that she never seems to get the better of her weekly parliamentary jousts with Keir Starmer. Time and again, she asks the wrong question, chooses the wrong topic, and lacks the wit to seize on any missteps by the Prime Minister, they moan. Why can't she give Starmer and co both barrels – just like showman Nigel Farage does on a regular basis? It is not a criticism likely to be made of her again anytime soon. Not after her comprehensive filleting of Starmer over his defeat by Labour welfare rebels. Initially, Starmer fended off Badenoch's barbs at him. It looked as though she would be repulsed yet again. You could imagine her Tory detractors already licking their lips, muttering, 'She can't even score an open goal.' But Badenoch wasn't finished. Starmer was merely the hors d'oeuvres. She took her knife to the person sitting behind Starmer, Rachel Reeves, asking him to guarantee she was safe in her job. Starmer the lawyer should have seen it coming a mile off. It's the oldest trick in the political book: he could have answered with a categorical yes. But he didn't. In political terms, he left Reeves drifting in the wind. The chancellor's emotional and distraught response signalled that Badenoch had scored a direct hit. A rare moment in such parliamentary exchanges, which, for the most part, have nothing to do with democracy or debate and are all about posturing, platitudes and pantomime politics. Knockout blows are about as common as someone scoring in the Eton Wall Game – about one per decade. Badenoch didn't just score, she smashed the ball through the back of the net. The most important consequence of today's events is how, indeed whether, Reeves can survive such a harrowing and humbling public ordeal. And whether Starmer can re-establish his and his administration's personal and political authority. That is all in the balance. But there can be no doubt that eight months after becoming opposition leader, Badenoch has arrived on the big stage. Her stock reply to complaints that she has not made her mark as a leader has been that it took heroine Margaret Thatcher years to do so. Thatcher became a formidable parliamentary performer, but it took her a long time. In her early years as opposition leader, she was frequently outwitted by Labour Prime Minister Harold Wilson. Thatcher's Tory critics said it showed she wasn't up to it. Just like Badenoch's Conservative critics. They won't be making the same criticism again anytime soon. In blasting open the fault line between Starmer and Reeves with a lethal precision, a skill most thought was not in her armoury, Badenoch has at long last given demoralised Conservatives reasons to be cheerful.
