What benefits are being cut and can Keir Starmer push reforms through the Commons?

Labour must trim £5bn off Britain’s welfare costs to make ends meet. Sean O’Grady looks at where the axe will fall and whether the prime minister can see off a challenge from angry MPs in his party

Keir Starmer has used a weekly meeting of his MPs to strengthen support for a series of reforms to social security designed to get people who want to work back into the economy, improving their quality of life and, not least, also aimed at shaving about £5bn off the total bill of £65bn for working-age benefits (ie, excluding the much larger cost of the old age pension). Demographics mean that that total will rise to some £100bn by the end of the decade – about double the defence budget, which most people wish to see increased.

The government needs to get reforms underway that will help the chancellor meet her targets for public borrowing – the fiscal rules. Her spring statement on 26 March will thus be crucial for the government to improve its fiscal performance, retain market confidence and avoid a crisis.

Where will the cuts fall?

Reportedly, in two areas: the greater part of the £5bn will be recovered by reducing outlays for in-work benefits for those who are long-term sick and people with disabilities, while the rest will be found by moving young people not in education, employment or training off any benefits they’re entitled to and into more productive uses of their time.

How many are affected?

There are 2.8 million people on long-term sickness benefits, some as a result of the pandemic (long Covid and mental health issues); demographics will push that number to more than four million in the coming years. In addition, almost one million young people, even with a labour shortage, find themselves outside of work, apprenticeships or tertiary education. This has been a persistent issue for decades, with a strong mismatch between where the potential workers live (traditionally in the depressed regions) and where the jobs are (usually the faster-growing south of the nation, where accommodation costs are prohibitive).

Britain’s low birth rate, structural weaknesses in the labour market, political resistance to immigration and unfavourable dependency ratio (working versus non-working population) cannot be easily repaired. Something has to give.

How will this work?

The cash level of benefits will be maintained and uprated with inflation. So the savings are to come from reducing, or restraining the growth in, the numbers receiving such benefits. That, in turn, will be done by checking whether people are still eligible for benefits and, possibly, tightening eligibility criteria, probably for new claimants. A more palatable way of reducing those on benefits is to get them jobs, and the government is promising 1,000 new “work coaches” to achieve that, as well as reorganising job centres.

Will it work?

In the short term, what matters more is whether economists at the Office for Budget Responsibility believe it will work, so the chancellor and the secretary of state for work and pensions, Liz Kendall, have a job of their own on their hands with this. Vague promises about moving people into jobs won’t be enough.

Can they get the reforms through the Commons?

Such is the size of Labour’s majority, and the almost existential need for Labour not to split on its central pledge to restore the public finances, that any rebellion won’t be large enough to defeat the plans. Previous Labour rebellions, on child benefit and the pensioners’ winter fuel allowance have failed to inflict much damage, and the relatively muted response to the recent cuts in overseas aid and the resignation of Annaliese Dodds suggests the same this time round.

It also seems that the 2024 cohort is proving remarkably loyal to their leader and the manifesto on which they stood (which was very circumspect about welfare reform). Labour whips will also be working to offer concessions and to ensure the rebels are confined to the “usual suspects”, some of whom, such as John McDonnell, haven’t had their whip restored since the last rebellion. However, the cuts hurt and there will be some emotional speeches, dissent, whips withdrawn and embarrassment about Starmer’s frequent campaign promises of “no return to Tory austerity”. Indeed, many of the arguments Kendall and Reeves make about the affordability of the welfare bill and helping people get into work and out of dependency sound remarkably like the ones put forward by Mel Stride and Jeremy Hunt not so long ago.