Sir Keir Starmer’s benefits climbdown will create a ‘two-tier’ benefits system with families facing a £3billion tax bombshell to pay for it, critics warned last night.
And that will be on top of the £1.25billion bill caused by the Prime Minister’s screeching U-turn over winter fuel payments for pensioners.
Experts warned the £4.25billion black hole in the public finances caused by the backsliding will probably force Chancellor Rachel Reeves to plug it with more tax rises in her autumn Budget.
The Prime Minister was humiliatingly forced to hand Labour’s welfare rebels the concessions in a bid to avoid defeat in a crunch vote on benefits cuts on Tuesday.
The compromise deal last night looked like it had peeled off enough of the 126 rebels to pass the vote. However, as many as 50 were still threatening to rebel unless the vote was pulled.
The reforms had originally been forecast to save the Government £5billion a year by the end of the Parliament.
Charity bosses and Labour MPs still planning to rebel also warned the new proposals would create a ‘two-tier’ benefits system because existing Personal Independence Payment (PIP) claimants will keep their current level of disability payments.
But new claimants after November 2026, when the changes are scheduled to kick in, would be entitled to as much as £4,000 a year less on average, even if they suffered from the same condition which meant they couldn’t work.
Sir Keir Starmer ’s benefits climbdown will create a ‘two-tier’ benefits system with families facing a £3billion tax bombshell to pay for it, critics warned last night (file image)
Experts warned the £4.25billion black hole in the public finances caused by the backsliding will probably force Chancellor Rachel Reeves to plug it with more tax rises in her autumn Budget (file image)
The Prime Minister was humiliatingly forced to hand Labour ’s welfare rebels the concessions in a bid to avoid defeat in a crunch vote on benefits cuts on Tuesday (file image)
Before the U-turn, both existing and future claimants were facing stricter eligibility conditions for the daily living component of PIP, a working-age benefit for those whose health condition increases their living costs.
The concessions on PIP alone protect some 370,000 people currently receiving the allowance who were set to lose out following reassessment.
Meanwhile, existing claimants of the universal credit (UC) health element, paid to those with a condition which stops them working, will have their payments protected in real terms. However, new claimants will see it halved and frozen.
According to calculations by the Resolution Foundation think tank, the PIP and UC reforms will cost £1.5billion each. Sir Keir yesterday branded his own climbdown ‘common sense’ and refused to rule out tax increases to pay for it in an interview.
During a visit to RAF Valley in Wales, he said how the Government intended to pay for it would be revealed in the autumn Budget, adding: ‘The changes still mean we can deliver the reforms that we need and that’s very important because the system needs to be a system that is fit for the future.
‘All colleagues are signed up to that, but having listened, we’ve made the adjustments. The funding will be set out in the Budget in the usual way.’
Yesterday’s climbdown is hugely embarrassing for Sir Keir as it highlights the scale to which he failed to read his MPs’ mood over the proposed cuts, with rebels having spoken out for months.
Care minister Stephen Kinnock dismissed criticism that the Government was in chaos and that Sir Keir was not ‘competent’, insisting that the process had been ‘positive and constructive’ and that the PM was someone who ‘gets stuck into fixing problems’.
Britain’s Prime Minister Keir Starmer (R) is shown a Hawk T2, the RAF’s premier fast jet trainer during a visit to RAF Valley, on Anglesey in north-west wales on June 27, 2025
Care minister Stephen Kinnock (pictured) dismissed criticism that the Government was in chaos and that Sir Keir was not ‘competent’, insisting that the process had been ‘positive and constructive’ and that the PM was someone who ‘gets stuck into fixing problems’
But Kemi Badenoch said the debacle left benefits claimants facing ‘the worst of all worlds’.
Speaking to reporters on a visit to North West Essex, the Tory leader said: ‘I think we’re seeing a government that is floundering, a government that is no longer in control despite having a huge majority.
I don’t see how they’re going to be able to deliver any of the things they promised if they can’t do something as basic as reducing an increase in spending.
‘It’s a real shame because what they’re doing now with this U-turn is creating a two-tier system… this is the worst of all worlds.’
Arch rebel Nadia Whittome, the Labour MP for Nottingham East, said: ‘These revised proposals are nowhere near good enough, and frankly, are just not well thought through. It would create a two-tier system in both PIP and the Universal Credit health element based on when somebody became disabled.’
Sir Mel Stride, the Shadow Chancellor, said: ‘Labour promised not to raise taxes on working people, and their Jobs Tax has led to rising unemployment and growth being halved.
Now the Government has been unable to rule out that taxes will go up this autumn in order to pay for Keir Starmer’s latest U-turns.’
