Alllegra Stratton: The Bond Markets vs Backbench MPs
We are not yet 12 months into this government, but already next week looks like it could hold the kind of parliamentary rebellion that normally hits a government in its last 12 months of life.
Today at Prime Minister's Questions, Angela Rayner remained adamant that the vote on benefits reform will go ahead next week – even though the MPs sitting behind her included some 120 rebels who have signed a wrecking amendment.
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Welfare concessions being discussed with Labour rebels, Rayner suggests
Ministers are discussing the prospect of further concessions to win over Labour MPs preparing to rebel over plans to cut disability benefits, the Deputy Prime Minister has suggested. Angela Rayner insisted the Government was not expecting backbenchers to go against traditional party values amid a looming revolt over the welfare Bill set for a Commons vote next week. Some 120 Labour MPs have put their names to a bid to block the legislation in its tracks, arguing that disabled people have not been properly consulted about the plans and further scrutiny is required before making any changes. Asked what concessions could be offered to convince rebels to back the Bill, Ms Rayner said 'discussions are ongoing'. 'I'm not going to get into that on your show tonight,' she said in an interview on ITV's Peston programme. 'Those discussions are ongoing around making sure that the welfare reforms that we're bringing in support people into work who need that, and we're putting a huge amount of investment into doing that, but also protecting the most vulnerable.' She acknowledged that 'a lot of people are very scared about these changes' but added: 'I haven't changed my Labour values and we're not expecting our benches to do anything that isn't in check with them. 'What we want to do is support people, and that is the crucial bit around these reforms of what Labour are trying to achieve, and we're discussing that with our MPs.' Work and Pensions Secretary Liz Kendall, who has already taken steps to soften the impact of the welfare Bill, has been locked in talks with backbenchers as she seeks to win over those opposed to the measures. The Universal Credit and Personal Independence Payment Bill faces its first Commons test on Tuesday. The plans restrict eligibility for personal independence payment (Pip), the main disability payment in England, and limit the sickness-related element of universal credit, with the aim of getting more people back into work and saving up to £5 billion a year. Existing claimants will be given a 13-week phase-out period of financial support, a move seen as a bid to head off opposition. But the fact so many Labour MPs are prepared to put their names to the 'reasoned amendment' calling for a change of course shows how entrenched the opposition remains. Earlier on Wednesday, Sir Keir Starmer defended his leadership against accusations he had misjudged the mood in his party, insisting he is 'comfortable with reading the room'. At a press conference at the Nato summit in the Hague, he said: 'Is it tough going? Are there plenty of people and noises off? Yes, of course, there always are, there always have been, there always will be. 'But the important thing is to focus on the change that we want to bring about.' Ms Rayner earlier told MPs in the Commons the vote will take place as planned despite the rebellion, saying: 'We will go ahead on Tuesday.' Social security minister Sir Stephen Timms said he was 'looking forward to the debate' next week. He told the Commons Work and Pensions Committee the changes need to be made urgently to cut the spiralling welfare bill. Committee chairwoman Debbie Abrahams, who is one of the Labour MPs to have signed the amendment to block the legislation, asked why the provisions within the Bill had not been consulted on. Sir Stephen said: 'Essentially because of the urgency of the changes needing to be made.' He said the cost of Pip had gone up from £12 billion before the pandemic to £22 billion last year 'and that is not a sustainable trajectory'. Setting out the impact of the reforms, he told the Committee 370,000 people getting Pip under the current system would not be receiving it by the end of the decade. Other senior Labour figures outside Parliament, including Greater Manchester Mayor Andy Burnham and London Mayor Sir Sadiq Khan, have also publicly expressed their opposition to the plans. Meanwhile, the Tories seem unlikely to lend the Government their support, with leader Kemi Badenoch setting out conditions for doing so including a commitment to rule out tax rises in the autumn budget and further cut the benefits bill.
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The pensions crisis forcing France into a doom loop it can't escape
Emmanuel Macron is trying to secure Europe's future in the teeth of Russian aggression with increased defence spending. But closer to home there is a more pressing financial crisis threatening to upend France's finances. Once again, the French Government is teetering on the brink of collapse. But not because of spending on guns or tanks. Rather, it is over how much the state should fork out for its generous state pension system, which has become the country's most contested political and fiscal battleground. Left-wing MPs are seeking to topple the administration of François Bayrou, French Prime Minister, with another no-confidence vote looming in the latest battle over the state pension age. Macron faced down parliamentary opposition and street protests two years ago to pass legislation which would push the state pension age up from 62 to 64 – but his victory is not complete and the ongoing war is leaving French finances more precarious. On the face of it, France's reform looks absurdly modest to those in many other countries. Even raising the state pension age to 64 means France would remain the lowest in the G7 economies. It compares with much more radical plans in Italy, where the age is rising to 71 – suggesting that Rome is rather more serious than Paris when it comes to tackling its problems. France spends more than 14pc of its GDP on public pensions, above almost every other nation in Europe, yet seems unable to accept even small steps to reduce the strain. On top of that, there are further efforts to unpick the plans. After negotiations between businesses and unions to tweak the measures ended in stalemate, the socialists in parliament filed a no-confidence motion against the Government. Leo Barincou, senior economist at Oxford Economics, says leaders in France simply cannot agree – even though 'the state of public finances in France is dire'. 'There are fundamental disagreements on what pensions should look like, how it should be funded, whether we should limit the deficit by pushing back the retirement age or by increasing taxes on wages, which are already rather high,' he says. 'Most economists, me included, would say it makes sense to push back the retirement age. 'France is already taxed at a very high rate, and economically it is much better to keep a larger share of the population working later. It would have a lot of beneficial side effects in addition to just the accounting pension effects.' That might be logical, but the government's position is weak – after last year's snap election left President Macron's party without a majority, he has had to rely on the support of opposition deputies to pass legislation. It does not look like Bayrou will fall yet, as Marine Le Pen's far right National Rally (RN) said it would not join forces with the Left-wing on this occasion. The Prime Minister himself has vowed to continue the 'difficult search' for a resolution to the pension dispute. But the situation highlights the frailty of the French government at a time when it desperately needs to make more spending cuts, to try to rein in borrowing and pacify twitchy bond markets. Neil Mehta, of RBC BlueBay Asset Management, says even surviving the pension row will not solve Bayrou's problems. 'For the government to collapse, the RN would need to vote against its plans. However, it seems likely that the RN will bide its time and wait for a more opportune moment, such as the upcoming budget season later this year,' he says. 'By doing so, they can further strengthen their leadership position and bolster their ambitions ahead of the 2027 presidential election. 'Meanwhile, political uncertainty in France continues to simmer beneath the surface, keeping investors on edge. This unease is compounded by the country's challenging fiscal dynamics, which urgently require a more sustainable path forward.' France's national debt is placing even more pressure on negotiations. The country's debt currently stands at 113pc of GDP, according to the IMF, compared to just over 100pc in the UK on the same measure and 64pc in Germany. And it keeps rising – the French Government borrowed 5.8pc of GDP last year and is expected to run another deficit of around 5.3pc this year. Even that apparent improvement is unlikely to last, as the figure is flattered by a temporary measure to raise more tax receipts from large companies, while the economy is struggling, worried households are saving instead of spending, and the threat of the trade war hangs over businesses. The International Monetary Fund (IMF) predicts the debt will rise to 128pc of GDP by the end of this decade. Andrew Kenningham, chief Europe economist at Capital Economics, expects that by 2035 the debt will hit 135pc on current plans. But if the French Government is serious about hitting Macron's defence spending targets, the picture will be even worse. 'It only raises more questions about where they will find savings from,' he says. 'If they do meet the Nato target and not make offsetting cuts elsewhere, it would be more like 147pc of GDP. That would push it above where Italy's debt is now.' That is a serious problem for a Government which already faces rising debt interest costs and could trigger a fresh round of turmoil in bond markets. But Barincou says there is no sign those spending cuts will be made. 'There is currently no political path towards reducing the deficit. There is no majority that could agree on reducing social spending. Taxes are already very high and raising them would be extremely unpopular,' he says. 'With this kind of very weak minority government that we have, it is extremely difficult to see how France could reduce its deficit. Pensions are an area to look at, because it is such a huge category of expenditure for France, but once again it is politically explosive.' It sets the scene for a debt spiral and the looming spectre of fresh crises at every turn. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
