A senior minister has insisted Labour will keep its election tax promises, after a major climbdown over welfare changes left a hole in the government’s spending plans.
Last night, ministers offered rebel Labour MPs last-minute concessions to pass a welfare bill that was originally intended to make £5bn a year in benefits savings by 2030.
The concessions mean the savings will now be delayed or lost entirely, which puts pressure on Chancellor Rachel Reeves ahead of the autumn Budget.
Cabinet minister Pat McFadden told the BBC there would be “financial consequences” to the decision to water down planned cuts to disability and health-related benefits.
But the minister ruled out increases in income tax, National Insurance or VAT in response to the government’s decisions on welfare.
“I’m not going to speculate on the Budget,” McFadden said.
“We will keep to the tax promises that we made in our manifesto when we fought the election last year.”
Helen Miller, incoming director of the Institute for Fiscal Studies think tank, said the government had moved from a position of saving £5bn to nothing by 2030.
She said: “Come autumn, given the government has not been able to put through the cuts it wanted, and given that the growth might get worse rather than better, it’s looking increasingly likely that, if the government needs to do something, it’s going to turn to tax rises.”
In its election manifesto, Labour said it would not raise taxes on “working people”, specifically income tax, national insurance or VAT.
Reeves has committed to meeting so-called fiscal rules, which most governments in wealthy nations have in place to try to maintain credibility with financial markets.
Reeves’s two main rules are not to borrow to fund day-to-day public spending; and to get debt falling as a share of the UK economic output by 2029/30.
But Reeves’s determination to stick to these rules has led to speculation that she will raise taxes or announce spending cuts in her autumn Budget.
The Labour government’s expensive policy reversals on welfare and the winter fuel allowance for pensioners have made that task more difficult.
Appearing on ITV’s Lorraine programme, Deputy Prime Minister Angela Rayner said welfare reform was “always difficult”, and said the government has to “flatten that curve a bit” of welfare spending rising.
She said: “Rachel [Reeves] will have to look at those challenges” in the Budget.
The Labour rebellion over the welfare changes undermines the authority of the chancellor and Prime Minister Sir Keir Starmer, and raises questions about their ability to enact key parts of their policy programme.
Asked about the challenge to the government from its own backbenchers, Rayner said “to be fair to colleagues many of them have been raising them [concerns] privately”, adding that “the process can look aggy but that’s the way you get to consensus”.
The biggest savings in the welfare bill would have come from restricting eligibility for the personal independence payment (Pip), the main disability benefit in England, Wales and Northern Ireland.
But in a late concession on Tuesday evening, ministers shelved those plans and said any Pip changes would happen after a review of the benefit.
In the end, MPs gave the government’s Universal Credit and Personal Independence Payment Bill their initial approval, by 335 votes to 260.
Though it was not enough to stop 49 Labour MPs voting against the legislation, the largest revolt of Sir Keir ‘s premiership.
Labour’s Rachael Maskell had proposed an amendment designed to halt the legislation, which was backed by a total of 44 Labour MPs.
The York Central MP said she had seen the bill “disintegrating before our eyes”.
Maskell said she was glad there had been a public debate about the issue and “now disabled people should feel empowered to have their voice at long last in an ableist parliament”.
Labour MP Chris Curtis, who supported the welfare changes, said the government needed to focus on economic growth to put the finances on a stable footing.
“I hope this government is going to go further and faster, and be bolder and more radical on unlocking growth in this country,” he said.
“The most important thing for financial stability is to ensure we get the economy growing again.”