Keir Starmer's benefits U-turn to blow £5bn hole in Reeves's Budget
Sir Keir Starmer has been warned he risks creating a £5billion hole in the public finances as he considers U-turning on benefit cuts following backbench pressure. The Prime Minister is set to cost the Treasury up to £1.5billion by restoring Winter Fuel Payments for most pensioners, while potentially losing a further £3.5billion if the two-child benefit cap is scrapped.The potential reversals come as Chancellor Rachel Reeves prepares for her autumn Budget amid expectations of bleak economic forecasts. Left-wing Labour MPs are pushing for looser purse strings, with Government whips working to prevent a major rebellion.Reform leader Nigel Farage is also attempting to outflank Labour by calling for Winter Fuel Payments to be fully restored and the two-child benefit cap to be completely removed.Starmer announced last week that more pensioners would receive Winter Fuel Payments than his Government had initially planned. Treasury officials are expected to restore the payments, which had been stripped from nearly 10 million pensioners last summer, to almost everyone in retirement except the very wealthy.The new approach could involve clawing back payments from only the most well-off pensioners when they file tax returns, allowing Labour to maintain its position that millionaires won't receive the benefit.This revised policy would generate significantly smaller savings than the original £1.5billion target. If the payment was only removed from the million pensioners in the 45pc additional income tax bracket, it would save between £200million and £300million.The Prime Minister is also facing pressure to scrap the two-child benefit cap on Universal Credit, which would cost the Treasury an additional £3.5billion if removed entirely. The Observer reported that Starmer wants to remove the policy, which was originally introduced by the Conservatives.Whitehall sources caution that no decisions have been made on what might replace the current limit. Any changes to the cap are expected to be announced around the Budget.The Government has delayed its poverty strategy from summer until the autumn Budget, when the financial situation will be clearer. Complete removal of the cap would significantly increase pressure for new tax rises or spending cuts.Reeves faces additional financial pressures beyond the benefit policy reversals. Home Office plans to reduce net migration by 100,000 annually could cost the Treasury £7billion by the end of the decade, according to estimates.LATEST DEVELOPMENTS:Keir Starmer considers scrapping key benefit cap as Rachel Reeves faces £3bn budget hit'I gave everything to my job, now I’m punished for being too ill to work' PIP claimant fears for future as DWP cuts benefitsInheritance tax: Rayner's secret memo targets major death tax loophole that could wreck UK growthLast week's announcement of above-inflation public sector pay rises could add £2billion to £3billion to annual spending, creating further budgetary strain.The Government hopes new trade deals with America, India and the European Union will boost trade and generate additional tax revenue. Treasury officials are also reportedly urging the Office for Budget Responsibility to recognise that Labour's housebuilding plans will stimulate economic growth more than previously forecast.Donald Trump's trade protectionism decisions could have unpredictable impacts on UK economic forecasts.Mel Stride, the Shadow Chancellor, has strongly criticised Labour's approach to public finances. He told The Telegraph: "Labour have already lost control of the public finances and abandoned any pretence of fiscal responsibility. Now they are looking at loading up billions more in welfare spending, paid for either by higher taxes for working families or through yet more borrowing."Stride added: "When added to the likely cost of their panicked climbdown on Winter Fuel Payments, the Chancellor faces a potential £5bn black hole. Rachel Reeves's credibility is having new holes torn in it by the day. She is the 'tin foil' Chancellor, too weak to withstand pressure including from her own colleagues."Despite the mounting pressure, a No10 insider has insisted that no final decisions have been taken on either the Winter Fuel Payment position or the future of the two-child benefit cap.
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Sir Keir Starmer has been warned he risks creating a £5billion hole in the public finances as he considers U-turning on benefit cuts following backbench pressure.
The Prime Minister is set to cost the Treasury up to £1.5billion by restoring Winter Fuel Payments for most pensioners, while potentially losing a further £3.5billion if the two-child benefit cap is scrapped.
The potential reversals come as Chancellor Rachel Reeves prepares for her autumn Budget amid expectations of bleak economic forecasts. Left-wing Labour MPs are pushing for looser purse strings, with Government whips working to prevent a major rebellion.
Reform leader Nigel Farage is also attempting to outflank Labour by calling for Winter Fuel Payments to be fully restored and the two-child benefit cap to be completely removed.
Starmer announced last week that more pensioners would receive Winter Fuel Payments than his Government had initially planned. Treasury officials are expected to restore the payments, which had been stripped from nearly 10 million pensioners last summer, to almost everyone in retirement except the very wealthy.
The new approach could involve clawing back payments from only the most well-off pensioners when they file tax returns, allowing Labour to maintain its position that millionaires won't receive the benefit.
This revised policy would generate significantly smaller savings than the original £1.5billion target. If the payment was only removed from the million pensioners in the 45pc additional income tax bracket, it would save between £200million and £300million.
The Prime Minister is also facing pressure to scrap the two-child benefit cap on Universal Credit, which would cost the Treasury an additional £3.5billion if removed entirely. The Observer reported that Starmer wants to remove the policy, which was originally introduced by the Conservatives.
Whitehall sources caution that no decisions have been made on what might replace the current limit. Any changes to the cap are expected to be announced around the Budget.
The Government has delayed its poverty strategy from summer until the autumn Budget, when the financial situation will be clearer. Complete removal of the cap would significantly increase pressure for new tax rises or spending cuts.
Reeves faces additional financial pressures beyond the benefit policy reversals. Home Office plans to reduce net migration by 100,000 annually could cost the Treasury £7billion by the end of the decade, according to estimates.
LATEST DEVELOPMENTS:
- Keir Starmer considers scrapping key benefit cap as Rachel Reeves faces £3bn budget hit
- 'I gave everything to my job, now I’m punished for being too ill to work' PIP claimant fears for future as DWP cuts benefits
- Inheritance tax: Rayner's secret memo targets major death tax loophole that could wreck UK growth
Last week's announcement of above-inflation public sector pay rises could add £2billion to £3billion to annual spending, creating further budgetary strain.
The Government hopes new trade deals with America, India and the European Union will boost trade and generate additional tax revenue. Treasury officials are also reportedly urging the Office for Budget Responsibility to recognise that Labour's housebuilding plans will stimulate economic growth more than previously forecast.
Donald Trump's trade protectionism decisions could have unpredictable impacts on UK economic forecasts.
Mel Stride, the Shadow Chancellor, has strongly criticised Labour's approach to public finances.
He told The Telegraph: "Labour have already lost control of the public finances and abandoned any pretence of fiscal responsibility. Now they are looking at loading up billions more in welfare spending, paid for either by higher taxes for working families or through yet more borrowing."
Stride added: "When added to the likely cost of their panicked climbdown on Winter Fuel Payments, the Chancellor faces a potential £5bn black hole. Rachel Reeves's credibility is having new holes torn in it by the day. She is the 'tin foil' Chancellor, too weak to withstand pressure including from her own colleagues."
Despite the mounting pressure, a No10 insider has insisted that no final decisions have been taken on either the Winter Fuel Payment position or the future of the two-child benefit cap.
