Rachel Reeves insisted she does want to slash benefits today as she frantically hunts for cuts to balance the books.
The Chancellor said reducing the welfare bill is the ‘right thing to do’ as she battles to avoid the need for tax rises at the Spring Statement later this month.
And she hinted that so-called ‘NEETs’ are in her sights, saying that the ‘majority’ of the million young people not in education, employment or training should be working.
Ms Reeves is said to be looking for £5billion of savings from benefits, with suggestions that conditions for claiming incapacity payments will also be tightened.
Work and Pensions Secretary Liz Kendall is thought to be arguing that any money freed up should be invested in helping people back into the labour market.
Ms Kendall announced limited plans this morning to deploy 1,000 existing Work Coaches to deliver ‘intensive voluntary support’ to around 65,000 sick and disabled people.
However, the head of the respected IFS think-tank Paul Johnson has delivered a message that the Treasury watchdog will not be swayed by vague reforms aiming to encourage people to return to work.
Rachel Reeves has been warned that tinkering at the edges of the welfare system will not be enough as she frantically hunts for cuts to balance the books
Ms Reeves is said to be looking for £5billion of savings from benefits, with suggestions that conditions for claiming sickness payments will be targeted
Speaking on Sky News’ Electoral Dysfunction podcast, Ms Reeves made clear she had no intention of easing her fiscal rules.
And she said it was clear to everyone that ‘global borrowing costs’ have increased since her Budget.
‘There’s lots of reasons for that. Lots of global developments that have caused that increase in borrowing costs,’ she said.
‘And I’ve also been really clear that we’re going to continue to meet our fiscal rules, because stability is absolutely essential for a strong economy.
‘But I think people also know that we need to get better value for money for what taxpayers put in.
‘We’ve got to reform our welfare system, because at the moment it’s letting down taxpayers because it’s costing too much, letting down our economy because there’s too many people trapped on out of work benefits.
‘And it’s letting down the people who are recipients of benefits because they are trapped on benefits rather than actively supported back into work.
‘So we don’t need an office for Budget Responsibility forecasts to tell us that we’ve got to reform our welfare system. We’re going to do that because it’s the right thing to do.’
Ms Reeves said the level of inactivity among NEETs was a ‘travesty’.
‘Many of those people, I would say the majority of those people should be working. And under the plans that we’re going to bring in, they will be working and crucially, they will be given support to get back to work,’ she added.
The Chancellor recommitted to Labour’s manifesto pledge not to increase income tax, National Insurance or VAT ‘on working people’ – although she did not appear to rule out other rises.
‘We increased taxes at the budget to plug the gaps in the public finances and to make sure we had money for the National Health Service,’ she said.
‘But we’ve just gone through a massive cost of living crisis for many people. They’re still struggling with that cost of living crisis.
‘So I don’t think it is the right thing to do to increase income tax, National Insurance or VAT on working people. And we made that commitment in our manifesto less than a year ago that we weren’t going to increase those taxes on working people. We’re not going to renege on that commitment.’
Mr Johnson said yesterday: ‘In the end to get £5 billion I think they will have to be very explicitly tightening criteria such that certain people will not be able to get the benefit.
‘If you say ‘we will reduce value of benefit X’, that scores as savings. There are probably some things you can do with disability benefits you can score – if, for example, you increase the amount of points you need to claim PIP there will be a figure saying X per cent will no longer get it.’
But he warned: ‘If you say ‘we are going tighten criteria’ or have more work coaches, or say the long-term sick have to look for work, that’s much harder to score because it’s much more uncertain.
‘Work coaches can be pretty helpful but is the OBR going to score £5billion of savings from work coaches? Not a hope in hell.’
Despite the huge tax-raising package in the Autumn Budget, Ms Reeves’ plans have been thrown into chaos by downgrades to the prospects for UK plc.
The Office for Budget Responsibility estimated in October that the government had headroom of around £10billion for meeting its fiscal rules.
They are that day-to-day spending must be paid for by revenue, not borrowing, and to have debt falling as a share of national income by 2028-29.
But a leaked early draft of the OBR’s advice indicates the wriggle room has been entirely wiped out.
Touring broadcast studios this morning, industry minister Sarah Jones refused to rule out more tax increases. There are reports that ministers have been asked to identify potential cuts of up to 40 per cent from budgets.
Asked on Good Morning Britain whether the Government is considering any new taxes, Ms Jones said: ‘I’m not going to speculate. I’m sorry about that, on what the Chancellor may or may not do.’
Justice Secretary Shabana Mahmood said yesterday it was ‘morally’ right to target the welfare budget for savings.
She told BBC Radio 4’s Today programme: ‘Well, this is the Labour Party. The clue is in the name. We believe in work. We know that there are many people who are currently receiving state support for being out of work, who want to be in work.
‘We know that we have too many of our young people currently out of work, not in education, employment or training.
‘It is right that a Labour Government strains every sinew to make sure that the support is available to prevent people from leaving the labour market, or, if they have left the labour market, to help them get back into it.
‘The Welfare Secretary has been very clear that this has got to be a clear focus for our Government. There’s a moral case here for making sure that people who can work are able to work and there’s a practical point here as well, because our current situation is unsustainable.’
Announcing the work coach move today, Ms Kendall said: ‘For too long, sick, and disabled people have been told they can’t work, denied support, and locked out of jobs, with all the benefits that good work brings.
Work and Pensions Secretary Liz Kendall is thought to be arguing that any money freed up should be invested in helping people back into the labour market
‘But many sick and disabled people want and can work, with the right support. And we know that good work is good for people – for their living standards, for their mental and physical health, and for their ability to live independently.
‘We’re determined to fix the broken benefits system as part of our Plan for Change by reforming the welfare system and delivering proper support to help people get into work and get on at work, so we can get Britain working and deliver our ambition of an 80 per cent employment rate.’
IFS analysis of data on tax and spend suggests that expenditure is largely in line with October’s outlook, but borrowing for 2024-25 could be £16 billion above it at £143 billion.
This would also be £56 billion above last spring’s forecast, largely reflecting the £50 billion revision to planned spending this year announced last autumn.
The IFS said that if Ms Reeves was put on course to breach her fiscal rules, ‘it seems more likely than not that she will respond by altering tax or spending plans’ than wait until the budget to announce policy changes in response.
Breaking the rules ‘at first time of asking’ could be seen as humiliating, dent her credibility in the markets and lead to months of politically damaging speculation about possible tax rises in the autumn, it said.
Following her last budget, Ms Reeves told the Treasury Select Committee that ‘we are not going to be coming back with more tax increases’ and later repeated a similar message to business leaders.
In a report published on Thursday, the think tank said: ‘While there is no such thing as an optimal fiscal framework, it is hard to believe that the UK’s could not be improved.
‘In an uncertain and volatile world, aiming to meet pass–fail fiscal rules with close to zero headroom leaves fiscal policy entirely exposed to global economic developments (or, more accurately, what the OBR judges the impact of those economic developments might be) and puts the Chancellor’s (sensible) promise to make fiscal policy changes only once a year at risk.
‘If there is a material change then policy should of course adjust. But the twice-yearly fine-tuning of policy in response to immaterial forecast revisions is an increasingly costly distraction from the big issues.’
The Resolution Foundation said that restricting eligibility for incapacity or disability benefit would be ‘risky’ as it would ‘concentrate all the income losses on a small group of claimants’.
Reforms should instead seek to close the financial gap between basic and health-related out-of-work support that incentivises health-related claims, the think tank said.
A focus on the three areas that drive higher spending – entrances, entitlements and exits – could stem the increase of the benefits bill, on track to rise by £32 billion over the 2020s, and help more people into work, it argued.
Senior economist at the think tank Louise Murphy said: ‘While the Government is keen to score short-term welfare savings ahead of the 26th March, truly effective reforms will take time to deliver.’
Meanwhile, the Liberal Democrats called on the Chancellor to use the statement to exempt the health and social care sector from the planned increase in employer national insurance before it comes into force on April 6.
The Government has committed to covering the cost of the rise for the NHS but not other health and care providers such as care homes and dentists.
An HM Treasury spokesperson said: ‘The Government’s commitment to fiscal rules and sound public finances is non-negotiable.
‘As previously announced, the OBR’s next forecast will be presented to Parliament on March 26 alongside a statement from the Chancellor. We do not comment on speculation around OBR forecasts.’
