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Pat McFadden, one of the UK government’s most senior ministers, acknowledges that the Labour Party’s climbing on welfare reform means that there’s less money to spend on other priorities as it faces financial holes ahead of the fall budget.
McFadden, one of Kiel’s most trusted EU prime ministers, said the passing of the welfare reform bill (which stopped losing votes in 11 hours on Tuesday) was a “difficult process” that raised difficult questions for the party.
“The decision made yesterday is costly, and we will not deny it,” McFadden told the BBC Wednesday morning.
“You can’t spend the same money twice,” he added. “Therefore, more money spent on (welfare) means less for other purposes.”
The Institute for Finance says the last-minute changes to the welfare bill meant that, in effect, it would not save money from reforms, as the government was intended to effectively cut £5 billion.
If Prime Minister Rachel Reeves sticks to her fiscal rules, given her limited headroom, she will need to find cuts elsewhere or raise taxes in the fall budget, IFS told the BBC on Wednesday.
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“The government has moved to save nothing, at least by the end of this parliament,” said Helen Miller, next director of IFS.
“If the government needs to do something, they’re becoming more likely to turn into a tax rise,” she added.
UK borrowing costs were checked in early trading on Wednesday, with 10-year yields rising 0.04 percentage points to 4.50 per cent.
“To put myself in the box early due to lack of headroom to fiscal rules, at some point it was almost inevitable that the wall would approach,” said Gordon Shannon, fund manager at TwentyFour Asset Management.
“Gilt investors wanted to see a cut in spending,” he added. “Now, the government’s only exit is tax rise, putting a death spiral in growth destruction.”
McFadden claimed the government was still pushing for welfare reform, and that Wednesday’s U-turn attempted to divert criticism that it seriously undermined the planet, which took office in just one year.
However, he acknowledged that welfare reforms rarely happen before November 2026, when government reviews on disability benefits are expected to be completed.
On Tuesday, the government effectively halted changes to individuals’ independent payments until after review, after it appeared that a backbench labor rebellion could kill the bill. Priorities had already undermined legislation seeking to seize rebels last week.
“There are still welfare reform lawsuits,” McFadden said. “(That’s) still the case in the future.”
McFadden defended the position of Secretary of State Liz Kendall for labor and pensions, and many commentators believed she was hanging out to be dry by the government.
Conservative leader Kemi Badenok said Tuesday that Kendall appeared to have been “tortured” by the process.
“She’s a great person at doing this job so she can continue,” McFadden said, trying to do a show of unity from the government’s upper class. “We’ll stand together as a team.”
