Tax rises likely after Sir Keir Starmer's U-turn on disability cuts, economists warn

Tax rises are now “increasingly likely” after the Prime Minister was forced to offer his rebel backbenchers further concessions on his welfare reforms.

Sir Keir Starmer won the crunch vote in the House of Commons on Tuesday night by 335 votes to 260, but only after a further climbdown that all but wiped out the savings the Chancellor was hoping to make.

Economists are now warning the UK government’s fiscal credibility is at risk and are questioning Downing Street’s ability to reform the economy.

Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer. | Jacob King/Press Association

The Institute for Fiscal Studies said the 11th-hour concessions mean there will be no “net savings” by 2029/30. Initially the Chancellor estimated the cuts would save £5 billion a year.

Helen Miller, deputy director of the institute, said: “Since departmental spending plans are now effectively locked in, and the government has already had to row back on planned cuts to pensioner benefits and working-age benefits, tax rises would look increasingly likely.”

Senior government minister Pat McFadden has since admitted the U-turn will “have a financial consequence”, but said the UK government would not increase income tax, National Insurance or VAT in response to Tuesday night’s vote.

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Speaking to BBC Breakfast, he said: “I’m not going to speculate on the budget. We will keep to the tax promises that we made in our manifesto when we fought the election last year.”

Chancellor of the Duchy of Lancaster Pat McFadden. | Press Association

The initial proposals were to cut the eligibility criteria for personal independence payments and the health element of Universal Credit. Personal independence payments are devolved in Scotland as the adult disability benefit, but any cuts at UK-level would affect how much funding goes to the Scottish Government to pay for this benefit.

The UK government’s own research suggested it would push 250,000 people into relative poverty.

However, more than 120 Labour MPs signed an amendment to try and block the welfare Bill from progressing through Parliament, including several Scottish MPs, such as Alloa and Grangemouth MP Brian Leishman.

The Prime Minister was forced to U-turn on the initial plans. His new proposals, which were estimated to save £2.5bn, but push 150,000 people into poverty, would mean the cuts would only affect new claimants.

However, a second rebellion began to brew and at the last minute the Prime Minister and Chancellor were forced to U-turn again, meaning there will now be no cuts to personal independence payments.

Four Scottish Labour MPs voted against the government, including Mr Leishman, Irene Campbell, Tracy Gilbert and Euan Stainbank.