Labour's Reversal on £3bn PIP and Universal Credit Allocations Amplifies Demand for Reeves
In a surprising turn of events, the government has scrapped major disability benefit reforms, marking another significant policy reversal this month. Following an uproar from more than 120 Labour MPs threatening rebellion, the proposed cuts to Person Independence Payments (PIP) and Universal Credit's health element have been placed on the backburner.
Keir Starmer granted these concessions, averting a potential Commons vote rebellion on the welfare bill which was scheduled for July 1. Claimants who currently qualify for PIP or the health element of Universal Credit will continue to receive their benefits at the same rate, sparing them from the proposed cuts. While future claimants will still face reductions, existing claimants will be safe, for now.
Initially, the government aimed to save £5 billion per year by 2030 through these benefit reforms. However, this U-turn could reduce the potential savings to a mere £2 billion. Analysts, like Ruth Curtice, chief executive of the Resolution Foundation think tank, pointed out that these concessions will cost the government over £3 billion.
This decision creates a dilemma for chancellor Rachel Reeves, who had set departmental budgets lasting until 2028/29 in her Spending Review on June 11, under the assumption that benefit cuts would yield a £5 billion annual saving. Reeves is bound by her fiscal rules, which prohibit borrowing for day-to-day spending and require debt to decrease as a share of the economy by 2029/30.
With limited fiscal headroom and spending cuts meeting resistance, tax hikes this autumn seem increasingly likely. It's evident that the government's plans face significant challenges, and the Autumn Budget might be a turning point in addressing these issues.
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Insight: The benefits changes specifically targeting PIP and Universal Credit's health element usually impacted existing claimants. This U-turn means approximately 370,000 current PIP claimants will have their benefits protected, along with their carers who will continue to receive Carer's Allowance. This U-turn will cost the government £2.1 billion by 2029/30. Similarly, recipients of the health element of Universal Credit will no longer face the planned freezing of their payments. [Source: Resolution Foundation]
Insight: The government's backtracking on several announced benefit reforms is part of a larger trend. Many of the tough decisions initially announced after the summer election win have been reversed, leading to criticism and a growing crisis within Westminster. [Source:various sources]
- The government's decision to halt the planned cuts to Personal Independence Payments (PIP) and Universal Credit's health element could cost the government over £2 billion in potential savings, as initially aimed.
- In the realm of personal finance, the U-turn on benefit reforms, such as those affecting PIP and Universal Credit, may have significant implications for approximately 370,000 current PIP claimants and their carers, who will continue to receive their benefits at the same rate.
- In the broader context of general-news, the government's financial decisions, including the reversal of certain benefit reforms, pose challenges to the fiscal strategies of policymakers, potentially leading to increased taxation or a shift in focus towards business and political strategies.
