Starmer's U-turn Risks £5bn Budget Hole as Treasury Faces Mounting Pressure

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Prime Minister Sir Keir Starmer is facing growing scrutiny over a dramatic shift in welfare policy that could leave a £5 billion shortfall in the UK’s public finances. The policy U-turn, which includes plans to reinstate winter fuel payments for the majority of pensioners and potentially remove the two-child benefit cap, comes amid internal party pressures and looming budgetary challenges.

 

The winter fuel payment reversal alone could cost the Treasury up to £1.5 billion. Initially intended as a cost-saving measure, the benefit had been stripped from nearly 10 million pensioners. Starmer’s revised stance would see these payments—typically between £200 and £300—restored to all but the wealthiest retirees. While ministers have suggested reclaiming the money from high-income pensioners through tax returns, the revised savings would fall far short of expectations. If the payments are withdrawn only from the top 1 million pensioners in the 45 percent tax bracket, estimated savings drop to just £200–£300 million.

 

More substantial financial strain could come if the two-child benefit cap is entirely abolished. Though Starmer initially retained the Tory policy upon taking office, The Observer reported that he is now considering scrapping the cap, which would increase Universal Credit entitlement for larger families. Eliminating the cap could cost the Treasury as much as £3.5 billion annually. While no final decisions have been made, Whitehall insiders say announcements could align with the autumn Budget.

 

These welfare reversals have sparked concern within the Treasury. Chancellor Rachel Reeves is already bracing for a tight fiscal environment as economic forecasts show shrinking headroom under Labour’s self-imposed fiscal rules. Speculation is mounting that Reeves may have no choice but to raise taxes in the coming Budget, a politically delicate move that risks alienating both centrist voters and Labour’s left flank.

 

Meanwhile, external pressures continue to mount. Home Office plans to reduce net migration by 100,000 annually could reduce tax revenues and raise borrowing by £7 billion by the decade’s end, according to forecasts. On top of that, recent above-inflation public sector pay awards may cost another £2–£3 billion a year.

 

Despite these looming pressures, Deputy Prime Minister Angela Rayner has publicly backed the government's direction. In response to questions about a leaked internal memo proposing new taxes and cuts, Rayner insisted she is “100 percent” behind Reeves and has no aspirations to lead the Labour Party. “I have no desire to go for the leadership of the Labour Party,” she told interviewers. “My desire is to deliver for the people of this country who have given me opportunities beyond what I could have dreamed of.” A formal inquiry into the leak has now been launched.

 

 

The mounting cost of welfare reversals has opened Labour to criticism from across the political spectrum. Reform UK leader Nigel Farage is expected to push further on welfare reform this week, demanding full restoration of winter fuel payments and the elimination of the two-child cap—an effort to outflank Labour on the populist front.

 

In Parliament, Labour whips are working to prevent a backbench rebellion from more left-leaning MPs demanding increased welfare spending. Within the Treasury, officials are seeking to convince the Office for Budget Responsibility (OBR) to revise its economic forecasts to better reflect the growth potential of Labour’s housebuilding agenda. Officials are also pinning hopes on trade deals with the US, India, and the EU to generate new tax revenue.

 

Critics argue that the Labour government has already compromised its fiscal credibility. Mel Stride, the shadow Chancellor for the Conservatives, said: “Labour have already lost control of the public finances and abandoned any pretence of fiscal responsibility. Now they are looking at loading up billions more in welfare spending, paid for either by higher taxes for working families or through yet more borrowing.”

 

He added, “When added to the likely cost of their panicked climbdown on Winter Fuel Payments, the Chancellor faces a potential £5bn black hole. Rachel Reeves’s credibility is having new holes torn in it by the day. She is the ‘tin foil’ Chancellor, too weak to withstand pressure including from her own colleagues.”

 

Downing Street maintains that no final decisions have been made on either the winter fuel payment policy or the two-child cap. Yet as the autumn Budget approaches, pressure is mounting on Starmer and Reeves to clarify their position—and to show how they intend to pay for it.

 

  Adapted by ASEAN Now from The Telegraph  2025-05-28

 

 

[JonnyF]

Not a clue.

 

Completely unfit to govern. 

 

4 hours ago, Social Media said:

Rayner insisted she is “100 percent” behind Reeves and has no aspirations to lead the Labour Party. “I have no desire to go for the leadership of the Labour Party,” she told interviewers. “My desire is to deliver for the people of this country who have given me opportunities beyond what I could have dreamed of.”

 

Yes it's all about "the opportunities what you could have dreamed of" isn't it Angela. It's all about you.