Chancellor Rachel Reeves is planning to slash billions of pounds in disability benefits in order to calm Britain’s debts crisis.
Downing Street is said to believe that significant reductions are needed in the welfare budget, namely from personal independence payments (PIP).
Yesterday, the pound fell sharply against the dollar and the Government’s borrowing rates rose to a 27-year high.
There were also warnings that the growing crisis could hit mortgage rates if it continues.
Now, Ms Reeves is said to have made it clear to the Treasury that she wants to get ‘tough’ on spending – meaning cutting areas in unprotected departments – rather than considering new tax rises, the Telegraph reports.
The annual cost of support payments for people with disabilities and health conditions is expected to increase from £22billion to £35billion by 2029.
Meanwhile, former Treasury select committee chairman Harriet Baldwin accused Ms Reeves of ‘fleeing to China‘ after the Chancellor flew into Beijing to meet the nation’s communist leaders while Britain’s borrowing costs soared.
She told the Mail: ‘The Chancellor needs to take responsibility for the ongoing ramifications of her Budget choices and return to face Parliament.’
Labour are planning on axing billions of pounds worth from disability benefits in order to calm its debts crisis
Chancellor Rachel Reeves meets with Minister of Finance for China Lan Fo’an at the Diaoyutai State Guesthouse in Beijing, China
Liberal Democrats leader Ed Davey added: ‘Instead of jetting off to China, the Chancellor should urgently come before the House of Commons to cancel her counter-productive jobs tax and set out a real plan for growth.’
In a highly unusual move, the Treasury issued a public statement on Wednesday reassuring the markets that the Chancellor’s commitment to her fiscal rules was ‘non-negotiable’ and that she would maintain an ‘iron grip’ on the public finances.
Treasury sources said she was drawing up contingency plans for emergency spending cuts if a new forecast by the Office for Budget Responsibility in March shows she is on course to break her own debt rules.
Treasury chief secretary Darren Jones, who took her place in the Commons yesterday, repeated the commitment to the fiscal rules – and suggested spending would be squeezed if borrowing costs forced the public finances off course.
Mr Jones played down the significance of recent market turmoil, saying it was ‘normal for the price and yields of gilts to vary when there are wider movements in global financial markets’.
Prime Minister Sir Keir Starmer takes questions from the media during a visit to Elective Orthopaedic Centre in Epsom, Surrey
The yields on 10-year gilts (pictured) spiked today after strong jobs figures in the US. The rise means the UK government has to pay more to finance borrowing
The pound has been losing ground against the dollar in another worrying sign
And he defended the Chancellor’s trip to China, describing it as ‘an important visit for trade and investment in the UK economy’.
On Wednesday, the pound slumped close to $1.22 versus the US dollar, the lowest level since November 2023 – adding to sharp falls the previous day. One City analyst joked that sterling’s slide suggested it was becoming the ‘Great British peso’.
Yields on UK ten-year bonds climbed above 4.9 per cent, a fresh 17-year high, while yields on 30-year bonds rose above 5.4 per cent, the highest since 1998.
Eva Sun-Wai, a fund manager at M&G Investments, said: ‘The worry is that investors have just lost faith in the UK as a place to put their assets.’