Everything you need to know about Labour's welfare reform U-turn

Independent

01-07-2025

Sir Keir Starmer has offered a major concession to Labour MPs following widespread criticism over the government 's controversial plans to cut welfare spending.
But ahead of the Universal Credit and Personal Independent Payment Bill's second reading in the Commons on Tuesday evening, some 39 backbenchers signed an amendment rejecting the legislation.
Whether the changes will stave off the rebellion remains to be seen, as a large number of Labour MPs have signalled that they are still not happy with the package of measures.
Earlier in the week, more than 130 Labour MPs signed a 'reasoned amendment' to the bill which would deliver the measures. If passed, it would have effectively stopped it in its tracks for the time being.
However, Liz Kendall sent a letter to Labour MPs on Thursday night laying out two key changes 'to strengthen the bill' and the amendment's main sponsor Dame Meg Hillier, chair of the Treasury select committee, pulled it.
The work and pensions secretary said: 'These important reforms are rooted in Labour values, and we want to get them right. We have listened to colleagues who support the principle of reform but are worried about the impact of the pace of change on those already supported by the system.'
Although Labour has laid out several plans for welfare reform since March, the Universal Credit and Personal Independence Payment Bill comprises changes those two benefits exclusively.
Here's what you need to know about the measures and how they have changed:
Cutting back PIP eligibility
Currently claimed by 3.7 million people, PIP is designed to help with extra costs incurred by living with an illness or disability.
The plans see the 'daily living' element of the benefit effectively become harder to claim as the eligibility criteria is tightened. Applicants are currently assessed based on how limited their ability is across ten activities, and awarded points between zero and eight for each based on severity.
Under current rules, an applicant needs to be scored at least eight points in any combination to be awarded the lowest rate of PIP. Following the changes, they would need this and to have scored four of these points in a single activity.
The planned changes would form the bulk of savings from Labour's welfare reforms, at an estimated £4.1 billion. Under these rules, around 1.5 million current claimants would not meet eligibility criteria, the Office for Budget Responsibility (OBR) says.
How has the measure changed?
Following the concessions made by ministers, all current claimants would be assessed in the future under the current criteria rather than the proposed points system.
Ms Kendall told MPs this decision has been made in recognition the proposed changes being 'a source of uncertainty and anxiety.'
She has also announced that welfare minister Sir Stephen Timms will carry out a review of the whole pip system.
However, critics say this threatens to create a 'two-tier' benefits system, with new claimants subject to tighter rules than existing ones. And numerous Labour MPs want the legislation delayed until have the Timms review is complete.
Labour backbencher MP Alex Sobel told the BBC's Newsnight programme: 'Whether you acquire disability at birth, five years ago or tomorrow, it should be the same for everyone.'
Changing Universal Credit rates
The other key change in the bill sees the rates of Universal Credit rebalanced, with the standard rate rising while the health-related rate is cut back.
Labour said it will 'rebalance payment levels' in Universal Credit to 'promote work and address perverse incentives' in the system, beginning in April 2026.
The plans would bring in an across-the-board increase to the standard Universal Credit allowance for new and existing claims from April 2026. This will be a boost of £7 a week, to £106.
At the same time, the payment rate for the health-related element of Universal Credit will be frozen. Those already receiving it, will still get £105 a week until 2029/30. Meanwhile, new claimants for this element will get just £54 a week – almost half.
These claimants will continue to receive the standard Universal Credit allowance alongside this entitlement, and be eligible from the uplift to that as with any other claimant.
Around 2.7 million families are forecast to be in receipt of the health element when the changes come into effect, the OBR says.
How has the measure changed?
Ms Kendall has confirmed that all existing claimants of the Universal Credit health element, alongside any new claimant meeting the severe conditions criteria, will have their incomes fully protected in real terms.
Will the Labour rebels back down?
Several issues were listed in the rebel amendment, with the text highlighting the Office for Budget Responsibility's (OBR) stark analysis that the plans would push 250,000 into poverty, including 50,000 children.
This figure has now reduced but is still at 150,000, according to the government's impact assessment, which has angered a number of Labour MPs.
Another concern listed is that the government's decision not to conduct a formal consultation with disabled people regarding the two crucial reforms the bill entails.
Addressing this Ms Kendall wrote to MPs: 'Colleagues rightly want to ensure that disabled people and those with ill health are at the heart of our reforms.'
The DWP secretary adds that a ministerial review of the PIP assessment is underway led by disability minister Sir Stephen Timms, with disabled people 'at the heart'.
However, this does not mean that the two measures in the bill will now receive formal consultations, meaning many are likely to feel that the criticism still stands.
Dame Meg Hillier, lead Labour MP rebel, called the government's climbdown a 'good and workable compromise'. This is a major win for ministers, as her support is likely to convince several wavering MPs.
However, another rebel leader Debbie Abrahams, the work and pensions committee chair, said: ''The actual offer that was put to one of the negotiating team wasn't actually what we thought we had negotiated. There are some issues around that."
And a second amendment rejecting the Bill has been put forward by York Central MP Rachael Maskell with the backing of 138 disability groups, saying disabled people had 'yet to have agency in this process'.