Chancellor Rachel Reeves has reaffirmed her commitment to reforming the welfare system, emphasizing the need for the government to “get a grip” on rising welfare spending. Her comments come as Labour MPs express growing concerns over potential cuts to the welfare budget, particularly for disabled individuals, which some have deemed “unacceptable.”
Reeves made her stance clear during a visit to Rosyth, where she addressed journalists. She acknowledged that the current welfare system is “not working for anyone” and highlighted the unsustainable growth in welfare costs, which are projected to rise from £65 billion to £100 billion annually over the next four years. Prime Minister Sir Keir Starmer has also criticized the system as “unsustainable, indefensible, and unfair,” urging the government to take action rather than “shrug its shoulders and look away.”
The specifics of the welfare reforms will be unveiled next week by Work and Pensions Secretary Liz Kendall, with the full extent of spending reductions detailed in Reeves’s Spring Statement the following week. However, the proposed cuts have sparked unease within the Labour Party, particularly among left-leaning MPs who argue for wealth taxes instead of welfare reductions. Reeves, however, has dismissed this approach, sticking to her fiscal rules aimed at stabilizing the UK economy.
Reeves’s fiscal framework mandates that day-to-day government spending be funded through tax revenue rather than borrowing and requires a reduction in debt as a share of national income over five years. Some Labour MPs have privately urged greater flexibility in these rules to avoid deep cuts, citing the example of Germany’s recent decision to exempt defense and infrastructure spending from its “debt brake” restrictions. However, Treasury officials have pushed back, warning that relaxing borrowing rules could increase UK borrowing costs by £4 billion, potentially leading to higher interest rates and mortgage payments.
The internal debate has caused frustration within the Treasury, with sources emphasizing the risks of deviating from fiscal discipline. Despite calls from some unions and former ministers, including Annelise Dodds, for a broader discussion on taxation and fiscal policy, Reeves’s team remains steadfast. They argue that any interference with the independent Office for Budget Responsibility (OBR), which oversees the government’s fiscal plans, would be politically damaging, drawing comparisons to Liz Truss’s controversial mini-budget.
Meanwhile, backbench Labour MPs have voiced concerns over a lack of engagement from the Treasury, though government sources note that ministers have been meeting with MPs to address their questions. The tension within the party is unlikely to ease until the government makes significant progress in its goal of driving economic growth, which would reduce the need for tax hikes and spending cuts.
Recent economic data showing a reversal in growth has added pressure on Reeves, with opposition parties calling for a change in direction. Conservatives and Liberal Democrats have criticized the upcoming National Insurance increase on employers, labeling it a “jobs’ tax” that could hinder growth. Reeves, however, remains resolute, advocating for faster implementation of existing policies, including deregulation and restructuring of public bodies.
As the Spring Statement approaches, the Chancellor’s team is closely analyzing economic trends. While they focus on growth strategies, the underlying dissent within Labour suggests that economic performance and party unity are inversely linked. For now, Reeves’s commitment to welfare reform and fiscal discipline remains unwavering, even as the debate within her party continues to simmer.
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