Rachel Reeves ‘must raise taxes' after welfare and winter fuel U-turns

Times

a day ago

Rachel Reeves is likely to have to raise taxes to pay for the £4.5 billion cost of Labour's U-turns on welfare and winter fuel payments, leading economists have said.
The Resolution Foundation said the government's decision to protect existing claimants of disability and health benefits from the impact of welfare reforms will cost about £3 billion.
The decision earlier this month to restore winter fuel payments for millions of pensioners will cost another £1.5 billion. The strain on the public finances has been increased by global economic turbulence and the anaemic levels of economic growth.
Ruth Curtice, chief executive of the Resolution Foundation, told BBC Radio 4's Today: 'Altogether they are looking for over £4 billion. They have completed their spending review, which means that spending totals for departments are set. Revisiting that will be very difficult.
'Presumably, after this, looking for further savings from the welfare budget would be quite challenging so that leaves only extra borrowing, which the chancellor doesn't have much space for unless she were to change her fiscal rules or tax rises.'
The prime minister offered to water down the cuts during talks with senior backbenchers after accepting that he could not force the bill through unchanged, given that more than 120 MPs publicly oppose it in its current form.
The scale of the climbdown is even bigger than expected. In a move that would cost the Treasury £1.5 billion, Starmer has offered to restrict changes to personal independence payments (PIP) to new claimants, protecting 370,000 existing recipients who have been vocal over their concerns.
Claimants of the health element of universal credit — paid to those who are unable to work — will also be protected. The government had planned to freeze the benefit until 2029-30 in a move that would have resulted in 2.2 million people facing a cut of about £450. The reversal is expected to cost another £1.5 billion.
Restoring winter fuel payments to 7.5 million pensioners will cost the government about £1.5 billion. The decision to abandon some of the government's flagship pledges will increase pressure on Reeves ahead of the autumn budget. Economists believe tax rises are inevitable.
Meg Hillier, the MP for Hackney South & Shoreditch, one of the leading welfare rebels, said she would now support the bill. She said: 'This is a positive outcome that has seen the government listen and engage with people, the concerns of Labour MPs and their constituents.'
However, one rebel, the Nottingham East MP Nadia Whittome, said on Friday morning that the concessions were 'nowhere near good enough', and would create a 'two-tier' benefits system.
When asked if she had been persuaded to back off, she told Today: 'In short, no. The existing claimants will obviously be relieved, but there will still be £3 billion of cuts made here which will push people into poverty.
'Even these revised proposals are nowhere near good enough and frankly are just not well thought through. It would create a two-tier system in both PIP and the universal credit system when somebody became disabled.'
She said the bill would 'punish' people for trying to work, because the planned cuts would now only affect future claimants.
'Say you're on universal credit now, you do what the government tells you to do and you get a job, your health worsens in a few years, you need to go back on universal credit but you get less — that risks punishing people who are finding work which is the exact opposite of what the Bill is trying to do,' Whittome said.