Labour MPs Warn Rachel Reeves Welfare Cuts Would Be "Utterly Disastrous"

Nadine Batchelor-Hunt

@nadinebh_

“Politically, it would be utterly disastrous,” warned one Labour backbencher.

In the last week or so, increases in borrowing costs combined with a poorly-performing pound prompted concern that chancellor Rachel Reeves risked breaking her own fiscal rules, and would be forced to take unplanned steps to bring more stability to the markets.

Reeves on Tuesday told MPs she was “absolutely committed to meeting the fiscal rules”.

Prime Minister Keir Starmer’s official spokesperson used similarly strong language, telling reporters the government would be “ruthless” in pursuit of economic stability.

"We will be ruthless, as we have been ruthless in the decisions that we've taken so far.

"We've got clear fiscal rules, and we're going to keep to those fiscal rules."

The cost of government borrowing, measured in gilt yields, has fallen significantly in the last few days from the highs of last week. This will have come as a relief to Reeves, who had argued that rising costs were in keeping with global trends and nothing like what happened to the British economy in response to former prime minister Liz Truss’ mini-budget.

However, the question remains whether Starmer and Reeves take further action to reduce the risk of breaking their own fiscal rules and, crucially, what action they will decide to take.

Putting it simply, according to economists, ministers would have two broad options: tax hikes or spending cuts.

Both are fraught with political difficulty.

The chancellor has already promised that she won’t be “coming back” for more tax rises following the negative response to employer National Insurance rises in the autumn budget.

At the same time, the government repeatedly insists that any bid to make savings in the public sector would not be tantamount to return to the austerity policies of Tory governments.

But many Labour MPs, in public and in private, fear government talk of “ruthlessness” foreshadows future spending cuts that they will find difficult to accept.

Asked specifically about welfare earlier this week, the prime minister’s official spokesperson said “nothing is off the table when it comes to delivering value for money for the taxpayers”, and that the “current system needs reform” to reduce the benefits bill.

Kim Johnson, Labour MP for Liverpool Riverside, said “further predicted cuts would be absolutely devastating for our communities”.

"Poverty is a political choice, not an inevitability. Speculating about welfare cuts as a solution to the current fiscal challenges ignores the harmful human and economic cost of such decisions,” she told PoliticsHome.

"The government must learn the lessons of the last 14 years of Tory austerity and prioritise lifting our communities out of hardship, not pushing them further into it. Instead, we must tax those with the broadest shoulders to invest in our country and our communities to solve this crisis."

Another Labour MP told PoliticsHome that it’s important the government does not create a "deserving and undeserving poor" narrative, warning “that’s not what we’re about”.

"We have things like the triple lock for pensioners, which is great — but there's nothing like that for disabled people and there probably should be," they said.

"We can have all the arguments we want about the working age population, who could have some form of employment, what measures could enable them into work to bring that bill down, because, ultimately, that's the only way that that bill is going to be brought down.”

They added that a “welfare cut across the board” would create “uneasiness”.

A different Labour MP said that further spending cuts, particularly to welfare, would be "a disastrous step" and that they “hope to goodness” rumoured plans do not come to fruition.

"Notwithstanding the reception by the charities and those interested in the area, the impact upon people's lives would be absolutely devastating," the MP said.

"They are beyond struggling already, and it would be the wrong step to take.

“Politically, it would be utterly disastrous.”

Alfie Stirling, director of Insight and Policy at the Joseph Rowntree Foundation (JRF), said making cuts to the welfare budget would result in "living standards falling even further".  

"The people that rely on local government services and rely on benefits by disability benefits tend to be particularly vulnerable, and so you will be impacting some of the most vulnerable people in society," Stirling told PoliticsHome.

"You also risk then having knock-on effects in terms of people being able to find and re-enter work in future if they don't have the support in place to prevent a deterioration in their circumstances."

Sumi Rabindrakumar, head of policy and research at The Trussell Trust, expressed concern about the pressure welfare cuts could place on other public services like the NHS and schools.

"We would want to emphasise that while we recognize the fiscal challenge, we should see choices to slash welfare or social security payments as a short-sighted decision,” she said.

"This isn't just about cutting the budget in the here and now. This has long-lasting far-reaching effects, and it's why we see these lifelines that need to be kept."

Government loyalist Jeevun Sandher, Labour MP for Loughborough and Treasury select committee member, refused to be drawn on the possibility of spending cuts when he appeared on PoliticsHome podcast The Rundown, joking: "Don't get me into trouble".

"I’m not going to write any future fiscal statement by the chancellor," he said.

While Sandher was disciplined on this occasion, any decision to curtail welfare spending will test the ability of uneasy Labour MPs to bite their tongues.

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