Minister warns of ‘financial cost’ of welfare cuts climbdown as tax rises loom within months
Labour is facing fresh questions over the possibility of tax rises in the autumn after concessions to the party's welfare rebels left a £4.8 billion hole in Rachel Reeves's spending plans.
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The chancellor now faces a fiscal headache as the forecast £4.8 billion in welfare savings have been whittled away to nothing - making the prospect of autumn Budget tax rises look more likely.
The concessions, including the last-minute shelving of plans to restrict eligibility for personal independence payments (Pip), were enough to head off the Government's first Commons defeat on Tuesday evening.
But they also removed a key plank of Sir Keir Starmer's welfare reform agenda, delaying changes to Pip until after a review of the benefit not due to conclude until autumn 2026.
Pat McFadden told LBC this morning that there would be “financial costs” as a result of the welfare cuts.
Describing the impact of Pip concessions on the Treasury, Mr McFadden said:” There's definitely a financial cost...that will all be set out at the Budget.
“That's one moving part of the public spending picture. There are 100 moving parts to the public spending picture. But the decision to go at slower pace on changes to Pip does have a financial cost".
Forty- nine of Sir Keir’s own MPs voted against his welfare reforms, with several backbenchers describing the Government’s handling of the issue as “chaotic” and “shambolic”.
The rebellion came despite the government’s decision to remove the Pip changes from the Universal Credit and Personal Independence Payment Bill, which was announced just 90 minutes before MPs voted on Tuesday night.
Economists at the Institute for Fiscal Studies (IFS) and Resolution Foundation think tanks warned that Tuesday's concessions meant Ms Reeves could now expect no "net savings" by 2029/30 - a key year for meeting her fiscal targets.
IFS deputy director Helen Miller said the move had effectively halved the Chancellor's "margin of error" against her main fiscal rule, once again raising the possibility of tax rises in the autumn.
On top of that, a stuttering economy and global instability could mean she has even less room for manoeuvre than expected.
Ms Miller said: "Since departmental spending plans are now effectively locked in, and the Government has already had to row back on planned cuts to pensioner benefits and working-age benefits, tax rises would look increasingly likely."
The Resolution Foundation's Ruth Curtice agreed that there would be no savings in 2029/30, but suggested changes to universal credit - almost the only part of the Government's proposals still standing - could save money in the longer term.
On Wednesday morning, the Conservatives accused Labour of making billions in unfunded spending commitments, including both the U-turns on welfare and the partial reinstatement of winter fuel payments.
In a letter to Ms Reeves, shadow chancellor Sir Mel Stride demanded to know where the money was coming from, asking: "Will you raise tax or increase borrowing?"
Ministers have repeatedly insisted that Labour will not raise taxes on "working people", specifically income tax, national insurance or VAT.
But Ms Reeves also remains committed to her "iron clad" fiscal rules, which require day-to-day spending to be covered by revenues - not borrowing - in 2029/30.
Meanwhile, Sir Keir himself will face a grilling from MPs on Wednesday as he attempts to repair relations with his backbenchers.
The weekly session of Prime Minister's Questions comes just a day after 49 of his own MPs voted against his welfare reforms - the biggest rebellion of his premiership so far - while several backbenchers described the Government's handling of the issue as "chaotic" and "a shambles".