Welfare bill climbdown will have ‘a cost’ at budget, says senior minister

 

The UK government’s decision to drop proposed cuts to Personal Independence Payments (Pip) has led to serious political and fiscal consequences. Pat McFadden, Chancellor of the Duchy of Lancaster and a senior figure in Keir Starmer’s administration, confirmed the reversal will affect the upcoming autumn budget, admitting there is “a cost” to abandoning the changes. The savings from the Pip cuts, estimated at £5bn annually, are now off the table, significantly altering the government's financial planning.

The government’s flagship welfare bill passed its second reading in the House of Commons by a vote of 335 to 260, but not without turbulence. The decision to drop the Pip cuts came only after widespread backlash and the threat of the bill being defeated. A total of 49 Labour MPs voted against the second reading, tripling the size of the party’s previous biggest rebellion under Starmer. While the rebellion came mostly from the left wing of the Labour Party, it was large enough to raise questions about internal unity.

Despite speculation, Work and Pensions Secretary Liz Kendall retains the full backing of her colleagues. McFadden defended her, calling her “an excellent person” for the job and stressing the team’s cohesion. Nonetheless, the handling of the bill  marked by several U-turns and the risk of an embarrassing Commons defeat  has sparked internal criticism of Labour's political operation. Starmer’s leadership and party discipline face new tests as the government navigates these challenges.

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The fallout from Labour’s welfare policy U-turn is expected to put major strain on the government’s budget strategy. With the scrapping of £5bn in annual savings from proposed Pip cuts and the additional £1bn needed for winter fuel payment changes, Chancellor Rachel Reeves has seen much of her fiscal headroom vanish. Helen Miller, the new head of the Institute for Fiscal Studies (IFS), warned that tax rises are now “increasingly likely” at the autumn budget. She added that the government was unlikely to achieve any meaningful savings from the welfare bill by the end of this parliament.

Miller also highlighted how limited the Chancellor’s room to maneuver has become, especially if economic growth forecasts are revised downward. The welfare bill that passed the Commons no longer offers financial relief to the Treasury. Instead, the government must now reassess where future spending cuts or revenue increases might come from. “You cannot spend the same money twice,” McFadden acknowledged, reinforcing that difficult choices now lie ahead.

MPs had strongly opposed the welfare changes, with many alarmed by internal analysis showing 150,000 of the most vulnerable could fall into relative poverty if the Pip cuts had gone ahead. While ministers argued that other initiatives  such as NHS reforms and work support schemes  would mitigate that impact, the backlash proved too great.

Though the immediate political crisis has been contained, the longer-term fiscal implications remain serious. Starmer’s government now faces the dual challenge of maintaining public services and delivering on promises without increasing borrowing or making unpopular tax decisions. The next budget is likely to define Labour’s economic credibility and its ability to balance social commitments with fiscal discipline.