Chancellor Rachel Reeves is likely to have to raise taxes to pay for Labour’s U-turns on welfare and winter fuel payments, a leading economist has warned. The Resolution Foundation estimated that Sir Keir Starmer’s climbdown on benefit cuts is likely to cost around £3 billion.
It comes on top of the decision earlier this month to restore the winter fuel allowance for most pensioners which the think tank said would be another £1 billion. Ruth Curtice, who runs the Resolution Foundation, told BBC Radio 4’s Today programme: “The Institute for Fiscal Studies said it would cost £1.5 billion yesterday on the Pip changes.
“I think it’s more like £3 billion: you have the changes to Pip which cost £1.5 billion to £2 billion when you also take into account consequentials for things like carer’s allowance, but they’ve also said the freeze that they were going to introduce on universal credit health-related support will be undone and that will now rise in real terms and we estimate that will cost another £1 billion.”
She added that the U-turn on the winter fuel allowance would cost another £1 billion.
Ms Curtice added: “Altogether they are looking for over £4 billion. They have completed their spending review, which means that spending totals for departments are set. Revisiting that will be very difficult.
“Presumably, after this, looking for further savings from the welfare budget would be quite challenging so that leaves only extra borrowing, which the chancellor doesn’t have much space for unless she were to change her fiscal rules or tax rises.”
It comes after the Government offered a series of concessions to rebels on slashing the welfare bill in a bid to avoid the PM’s first major Commons defeat since coming to power.
Some 126 Labour backbenchers had signed an amendment that would halt the Universal Credit and Personal Independence Payment Bill in its tracks when it faces a crunch vote on Tuesday.
The Government’s original package had restricted eligibility for personal independent payments (Pip), the main disability payment in England, and cut the health-related element of Universal Credit, saying this would save around £5 billion a year by 2030.
But the changes mean Pip will be protected for all existing claimants, while existing recipients of the health element of Universal Credit will have their incomes protected in real terms.
The tax hike warning comes months ahead of the Chancellor’s autumn budget which is expected to be late October or early November.