Welfare U-turn leaves chancellor with financial blackhole that could lead to further humiliation
The welfare bill U-turn is politically embarrassing for the government, and it also leaves the chancellor with a significant financial problem.
If you recall, the original plan was rushed out before the Spring Statement in March because Rachel Reeves was in danger of breaking the borrowing and debt rules she had just set, at the first time of asking.
The government envisaged saving £4.5 billion a year by making it harder to qualify for Personal Independence Payments.
And a further £2.7 billion by cutting future spending on incapacity benefit - the 'health' element of Universal Credit.
The government also wanted to increase the generosity of universal credit for those out of work without health problems - benefit support for jobseekers in the UK is pretty mean by comparison with other wealthy European nations.
This netted out at total savings of £5.5 billion by 2029/30.
The PIP changes were tweaked and have now been shelved.
The changes to the incapacity benefit have been watered down.
The uplift to the standard allowance goes ahead as planned, so savings are now the sum total of zero.
As things stand, the changes are likely to cost the government money.
'After [yesterday's] climbdown, the government is effectively returning to the drawing board,' says Helen Miller of the Institute for Fiscal Studies.
'The Timms Review may lead to savings, although Sir Stephen Timms, minister of state for social security and disability, has said that the review is not intended to save money. And this review is not due to report until autumn 2026.'
Let us be clear, there has been a HUGE increase in the number of people claiming disability and incapacity benefits in the last five years.
We don't really know why. It's definitely not Long Covid. It's probably not entirely down to the cost of living crisis, although higher inflation will have been painful for anyone on benefits.
We do know this hasn't happened in other countries.
It's perfectly normal for a government to be concerned about a surge in claims and to seek to reform the system, but goodness, this has been a fiasco.
Back in March, according to the OBR, the chancellor had £10 billion of headroom against her self-imposed fiscal rules.
£5.5 billion of that has gone. Another U-turn on winter fuel will cost the government another £1 billion.
The outlook for economic growth (and therefore tax revenues) is weak. Borrowing is overshooting, and the government's borrowing costs are high. The news doesn't look good.
As things stand, there's a good chance Rachel Reeves will have to increase taxes in the autumn, if she is still chancellor.
Unless something changes, there's the prospect of further political humiliation ahead.
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Britain ‘looks vulnerable' after Labour U-turns
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The National
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