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Sir Keir Starmer gutted his controversial welfare bill on Tuesday as he attempted to fend off a full-scale Labour rebellion in chaotic House of Commons scenes, leaving a multibillion hole in UK public finances.
Amid fears of imminent defeat, Starmer authorised a last-minute climbdown. Experts said that net savings from the final version of the bill, initially intended to save £5bn, could be close to nothing.
The changes stripped out a clause that had been intended to generate welfare savings by tightening eligibility criteria for personal independence payments (Pip), the main disability benefit.
Labour MPs were astonished by the move, which leaves Chancellor Rachel Reeves facing the prospect of raising taxes to cover the £5bn she had expected to save from the welfare bill.
Kemi Badenoch, Conservative leader, said on X: “This is an utter capitulation. Labour’s welfare bill is now a TOTAL waste of time. It effectively saves £0, helps no one into work, and does NOT control spending.”
Sir Stephen Timms, disabilities minister, said any changes to the criteria would await the conclusion of the Pip review he is leading, in collaboration with disability groups.
Government insiders admitted they no longer knew how much the bill, which now mainly covers universal credit, would save. “It has all moved so quickly,” said one.
Many Labour MPs agreed with Badenoch that the bill had been rendered largely pointless. “It’s completely neutered,” said one.
Work and pensions secretary Liz Kendall agreed the last-minute climbdown after a day of negotiations with Labour rebels, talks that also involved Starmer and Reeves.
“What you’re netting out at is basically no savings — it will be just above zero,” said Louise Murphy, a senior economist at the Resolution Foundation, about the decision to scrap all tracts of the bill relating to disability benefit reform.
Murphy said that after all of the Pip reforms had been removed, the package was likely to net £500mn in savings for the Treasury in 2029-30.
A person close to the discussions said that the final change — to scrap all elements of the Pip reform — would not have happened if ministers were confident they would win the vote on Tuesday.
“There was an acknowledgment across government that we moved too quickly and we need to learn lessons from that,” they said.
Late on Tuesday, around an hour before a key vote, the government announced that it would be removing Clause 5 of the welfare bill — the entire section relating to changes to the Pip eligibility criteria.
There had been signs of growing unease earlier in the day as members debated the bill.
The reforms had been intended to tighten Pip criteria but a concession by Stamer last week meant that the changes would not affect existing beneficiaries. Now they have been removed entirely from the bill.
Allies of Starmer admitted that major reforms to disability benefits had been kicked into the long grass, pending the conclusion of Timms’ review.
One said: “We were elected to reform, there’s little disagreement that it’s needed. We accept the will of the House and will look at it again post-review. The destination — a system that supports the most vulnerable and doesn’t trap people — remains. It’s been less than smooth, but change isn’t easy.”