Rachel Reeves may be forced to raise taxes to plug holes in Britain’s public finances, a leading think tank has warned, after the government failed to rule out watering down plans to slash the benefits bill.
It comes ahead of the chancellor’s spring statement on March 26, where she is expected to make a raft of public spending savings to make up for tightening fiscal headroom and balance the books.
Initial reports had suggested that Personal Independence Payments (PIP) would be frozen from rising in line with inflation for a year, but the plan has been met with strong opposition – and is now expected to be dropped.
After warnings from charities that the plans to reform the welfare system could force thousands of disabled people into poverty and a growing rebellion from Labour MPs behind the scenes, the government now appears poised to row back on the proposals which were aimed at raising between £5bn and 6bn in total.
The Resolution Foundation, which dubbed plans to slash welfare “regressive” and “rushed”, said the government should instead raise taxes to meet their fiscal rules and make up for tightening fiscal headroom – something they argue is the only realistic alternative to the proposed welfare cuts.
While cutting day to day spending is an option, James Smith, the organisation’s research director, told The Independent that the “struggling state of public services” will make it difficult to find the large scale savings that are required in order to meet their fiscal rules.
The think tank estimates that extending the threshold freeze on income tax and National Insurance would raise £8bn during the final two years of the five year forecast.
“We would say that is a pretty progressive way of raising money. [The government] would get flack for it, but it’s technically consistent with their manifesto statements… it’s probably within their red lines and would be enough [to balance the books]”, Mr Smith said.
Labour promised in its manifesto not to raise VAT, income tax or national insurance contributions for “working people”.
Over the weekend, charities warned that the welfare plans could force thousands of people into poverty, with Jon Sparkes, chief executive of learning disability charity Mencap, telling The Independent that the organisation is “hearing deeply distressing reports from people who are feeling extremely stressed and anxious about what the changes could mean for them.”
It is understood that the charity had meetings with ministers where they warned them of potential adverse impacts but have since been kept in the dark about plans.
While Mr Smith said there “is a case for reforming benefits, the way they’re doing it, with the focus on PIP, doesn’t really seem to be about getting people back to work.”
“These sort of rushed reforms to benefits tend to under deliver in terms of savings, so we’re a bit worried about that. And it’s a very progressive way of making up for the headroom shortfall they seem to have.”
Meanwhile, Lisa Mainwaring, PR Manager at anti-poverty charity Turn2us said freezing or cutting PIP would be “devastating for disabled people, especially as many are already struggling with rising living costs”.
“PIP isn’t a work disincentive, it’s what allows people to live independently and, for some, stay in work. Without it, many risk losing their independence, facing severe mental health crises, and being pushed further into hardship”, she told The Independent.
Ms Mainwaring added: “Every day, we hear from disabled people who are terrified about what these cuts could mean… This kind of uncertainty is cruel and unnecessary.
“People shouldn’t have to live in fear of losing the support that allows them to function. The government could end this panic today by ruling out these cuts, but instead, disabled people are left in limbo.”
Asked about PIP by the BBC on Sunday, health secretary Wes Streeting was unable to say whether the government would freeze the payment as part of its welfare reforms this week.
“I haven’t seen the full plans, they haven’t come to Cabinet yet”, he said.
“But what I do know is the work and pensions secretary wants to support people who need help the most and we’ve got to make sure that there is a wider range of support, and that everyone’s playing their part, including me.
“Because with those levels of illness, for example, if I can help people back to health, in many cases I’ll be helping them back to work and that’s what we’ll do.”
The government has insisted that there is a “moral case” for implementing the package of welfare cuts – but it has drawn the ire of several Labour MPs and peers.
Concern from MPs arose after Downing Street could not guarantee that the most vulnerable disabled people would be unaffected by the changes. However, No 10 insisted it will “protect those who cannot work”.
The government has held a number of meetings with Labour backbenchers in order to persuade them of the plans, which have sparked concern across the party, with even cabinet ministers understood to be divided on the issue.
Sources have since told the BBC the government is looking at backtracking on the PIP freeze in order to stave off the impending rebellion.
And on Sunday, the government announced that disabled people will have the right to try employment without the risk of losing their benefits, in what is seen to be another major concession in its plan to slash the welfare bill.
Ms Kendall is expected to announce legislation to introduce a “right to try guarantee” that will prevent people receiving health-related benefits from having their entitlements automatically reassessed if they enter employment.
Defending the plans, Mr Streeting warned that many people in the current welfare system are “stuck in a trap of jeopardy”, as they want to return to work but are scared they wouldn’t be able to get their benefits back if it doesn’t work out.
A government spokesperson said: “As part of our Plan for Change, we are putting more money into working people’s pockets by increasing the National Living Wage, protecting their payslips from higher taxes, and freezing fuel duty.
“Our plan is built on stability, reform, and investment which is why we took the right decisions to deliver stability to our public finances and why the Chancellor has been clear that the government’s commitment to fiscal rules and sound public finances is non-negotiable.”
