A freeze to disability benefits will not go ahead following pressure from Labour backbench MPs, Sky News understands.
The government had been looking at freezing the personal independence payment (PIP) next year so it did not rise with inflation as part of a drive to cut down the ballooning welfare budget.
However, following pressure from Labour backbenchers over the past week, this has now been taken off the table, Sky News understands.
The proposal had been set to save about £5bn as Chancellor Rachel Reeves searches for savings after losing £9.9bn of fiscal headroom (the amount she could increase spending or cut taxes without breaking her fiscal rules) since the October budget due to a poor economy and geopolitical events.
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PIP is a payment of up to £9,000 a year for people with long-term physical and mental health conditions and disabilities to help with extra living costs.
However, the government is expected to make qualifying for PIP more difficult when Work and Pensions Secretary Liz Kendall reveals plans on Tuesday.
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Sky News’ deputy political editor Sam Coates, on the Politics At Sam and Anne’s podcast, said the Treasury is also expected to abolish the Work Capability Assessment, which determines whether someone is fit or not to work and to then receive disability payments.
The government has described the system as “dysfunctional” as those “not fit for work” do not receive employment support or further engagement after the assessment, which could lock them out of future work altogether.
Explainer: Which benefits could be cut?
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Sir Keir Starmer has made cutting the welfare budget a key project as spending on sickness benefits soared to £65bn last year – a 25% increase since the year before the COVID pandemic – and is expected to rise to £100bn before the next general election in 2029.
The number of people in England and Wales claiming either sickness or disability benefit has soared from 2.8 million to about 4 million since 2019.
However, many Labour MPs are uncomfortable with cutting benefits for disabled people.
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Ms Kendall had been expected to announce welfare cut plans last week but this was delayed by displeasure from backbenchers, with the government taking the unusual step of asking all 404 Labour MPs to attend “welfare roundtables” in Downing Street last week.
Greater Manchester’s Labour mayor, Andy Burnham – a former health secretary – agreed the benefits system “needs a radical overhaul” but wrote in The Times: “I would share concerns about changing support and eligibility to benefits while leaving the current top-down system broadly in place. It would trap too many people in poverty.”
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Tomorrow, the government will publish its plans to cut the welfare budget, but it’s the Labour benches that are likely to cause the most havoc.
This mini u-turn on freezing PIP will placate some Labour MPs nervous about the unintended consequences of the welfare crackdown and how it may affect disabled people.
On Sky News Breakfast today former Shadow Chancellor John McDonnell welcomed the news, and said he understood the pressures the Treasury was facing.
His muted tone could be an indication the government’s efforts to persuade backbenchers of the merits of the plan – by inviting them to Downing Street to speak their minds and be reassured the most vulnerable would be protected – is taking effect.
However, despite a relatively understanding tone from Mr McDonnell, he also warned Reeves’s plans may turn out to create more problems than it will solve in the long run.
Mr McDonnell accused the government of not understanding the world has changed, hinting the chancellor ought to follow Germany’s lead, break her fiscal rules and blame the policy pivot on unprecedented global events.
Greater Manchester mayor Andy Burnham also attacked the government’s plans to crack down on the benefits bill, but Treasury minister Emma Reynolds launched the fightback on Sky News Breakfast, insisting the government had a duty to reform the welfare system “according to our values”.
Reynolds argued there is dignity in work and that reforms were needed as “something has gone seriously wrong under the Tories”, arguing the cuts chime with Labour ideology.
And Health Secretary Wes Streeting – the self-proclaimed Tory whisperer – has hardened his rhetoric even further, claiming the over-diagnosing of mental health problems is in part to blame for the ballooning benefits bill.
This hardening of the government’s language is a clear attempt to talk tough, but will the government be able to follow through on the action the Treasury is desperate to see while many Labour backbenchers remain unconvinced Starmer has his priorities in the right order?
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Treasury minister Emma Reynolds played down the level of discontent over plans to freeze PIP, as she told Sky News: “It is absolutely everyday business that we should have discussions with backbenchers, meetings between our MPs and ministers happen all day, every day.
“So this isn’t something that is any different, but we’re determined to strike the right balance here.”
She added there will “always be a safety net for the most vulnerable” and pointed out Labour created the welfare state in 1945, but it needs to be “more sustainable”.
