Significant Cuts to UK Benefits System Loom as Chancellor Scrambles for Fiscal Stability
As the UK faces mounting pressure on its public finances, cuts to the benefits system are poised to exceed initial projections. Chancellor Rachel Reeves is under intense scrutiny as she seeks to address a potential financial shortfall by the end of this month. According to The i Paper, Reeves has opted against introducing any major tax increases during the upcoming Spring Statement, even if the Office for Budget Responsibility (OBR) indicates that her fiscal targets are at risk of being breached.
In lieu of tax hikes, Reeves has presented a series of strategies aimed at curtailing welfare expenditures and reducing the budgets allocated to various Whitehall departments. These proposals have been submitted to the OBR ahead of its updated economic and public finance forecast, scheduled for release on March 26, coinciding with the Spring Statement.
Initially, the Chancellor had committed to limiting fiscal events to just one per year; however, she is now willing to reconsider this pledge to maintain market confidence and uphold her fiscal rules. The government previously anticipated a benefits reduction of at least £3 billion, with Work and Pensions Secretary Liz Kendall poised to deliver a significant address on the matter in the coming weeks. This will precede a comprehensive document detailing the proposed measures.
A government insider revealed, “We must preserve our fiscal credibility, and trimming the welfare budget is an essential component of that strategy.” Reeves’s fiscal framework asserts that over the medium term, the government should not borrow funds for everyday expenses. During the October Budget, she reported a £9.9 billion cushion—representing the gap between planned borrowing and permissible limits—but recent underwhelming growth figures are believed to have diminished this buffer, possibly erasing it altogether.
Should the public finances fall into deficit, the Chancellor is prepared to announce new spending cuts, despite her earlier commitment to limit alterations to tax-and-spend policies outside of the annual Budget. The government is now asserting that the prior promise was to conduct one “major fiscal event,” leaving room for smaller announcements.
Reeves is also contemplating a reduction in the funding allocated to Whitehall departments during the upcoming spending review in June, which would conflict with a previous commitment made during the Budget. However, the primary focus remains on welfare reform, aiming to encourage a greater number of individuals currently receiving incapacity benefits to re-enter the job market.
A government source emphasized that any policies implemented would prioritize the welfare of recipients, asserting, “We are firmly dedicated to genuinely assisting individuals. There is a moral imperative to ensure that those who are not employed are not abandoned and left to navigate their challenges alone—we must extend our support to them.”
Although universal credit operates on a UK-wide basis, other benefits like the personal independence payment (PIP) are devolved, resulting in varied systems across Scotland. The Treasury has historically found it challenging to persuade the OBR to assess welfare adjustments in a manner that renders the public finances outlook more favorable, as the watchdog remains skeptical about the long-term impacts of regulatory tweaks.
Several influential Labour supporters have cautioned against cuts to welfare. Donor and green entrepreneur Dale Vince stated, “While it’s clear there’s a funding gap, the proposed government cuts will severely impact those who are already facing hardships—the most vulnerable among us. We have an alternative: ask those who are more affluent to contribute a little more.”
Steve Wright, the head of the Fire Brigades Union, affiliated with Labour, remarked, “Slashing billions from welfare would echo the austerity measures of George Osborne and the Conservatives. It would represent an outrageous assault on the poorest and most vulnerable members of society.” He warned that Reeves could risk being labeled an “austerity chancellor.”
Avnee Morjaria from the IPPR think-tank, which maintains close connections with numerous ministers, cautioned that the anticipated cuts could pose substantial risks. “Many public services are already in distress, and further cuts could jeopardize government commitments in areas like health, education, and crime,” she noted. “With NHS waiting lists persistently high, local councils nearing bankruptcy, record-level backlogs in the criminal courts, and overcrowded prisons, the situation is dire.”
In defense of the proposed reforms, Justice Secretary Shabana Mahmood remarked, “This is the Labour Party. The clue is in the name. We believe in work. We recognize that numerous individuals currently receiving state assistance because they are unemployed genuinely want to work. We also acknowledge that too many of our young people are out of work, not engaged in education, employment, or training. It is imperative for a Labour Government to exhaust every avenue to ensure that support is available to help individuals remain in the workforce or assist those who have exited the labor market in re-entering it.”
