186. Was Reeves To Blame For The Welfare Debacle?

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2:07Hello and welcome to The Rest is Money with me, Robert Perston. And me, Steph McGovern. Right, should we talk about what's going on in the world? So obviously we're seeing a climb down by Keir Starmer of the welfare reform build. Do you want and just give us your thoughts on what's going on. Look, I don't want to over-dramatise this, but this does feel to me like a really serious and damaging moment for Keir Starmer's government. It's almost amazing that they are in this economic and fiscal crisis, given, you know, they've got this enormous majority. The opposition, you know, whether it's the Tories or reform, you know, are obviously split.

2:59This is a government that has sort of caused astonishing self-harm for itself. I'm not sure, you know, as somebody who spent decades following governments, I've never seen any sort of self-harm quite of this magnitude. But the paradox about it is I do believe that the fiscal credibility of this government is in pieces. And yet this is a government that's its number one priority was to secure fiscal credibility. The very first bit of legislation they pushed through was to legislate for these fiscal rules. Almost every time that either the prime minister or the chancellor opened their mouths, almost the first thing they always say is, we will be responsible guardians of the public finances.

4:02We will not break our fiscal rules. and so it is actually astonishing that they are now in this mess and to be clear the mess is not actually about the fact that in caving in to the rebels they've lost five billion pounds of savings obviously losing five billion pounds of savings is a significant uh boo-boo you know in itself. But actually, the significance of this goes much wider and deeper. So you'll remember when we talked about the spring statement, that despite the 40 billion plus she'd raised, this is the Chancellor in the autumn budget, she was going to miss her fiscal targets, and she was going to have to raise some money.

4:56And what she decided to do was, having seen that the Department for Work and Pensions had themselves concluded that the bill for disability benefits was rising too rapidly, that they were going to reform the system. This is the personal independence payments part of the system and the health-related part of universal credit. it. They were going to reform this system to try and slow the growth of payments of these benefits to very vulnerable people, people with physical illnesses and people with mental illnesses. But the instinct, obviously, of the Department of Work and Pensions, and this is the correct instinct, was to do the review and then come up with a package of reforms.

5:43And from that, come up with a number for the kind of savings that would be likely to be made over a period of years. What actually happened was that the Treasury said to the Department of Work and Pensions, initially they said, we think you can find 10 billion pounds of cuts. This involved one very brutal reform, which was to freeze the personal independence payment for years. Actually, the Prime Minister intervened at that point. He, as you know, had a disabled mother. He had, And his brother tragically died recently, but he had a disabled brother as well. So this issue of disability was close to his heart.

6:27And he actually said, no, we can't freeze the personal independence payment. So that 10 billion of savings ordered by the Treasury came down to 5 billion, to a large extent, from reforming the personal independence payments part of the system. And you have to prove when you're claiming it that you're broadly unable to look after yourself. And there are tests about whether you're capable of washing yourself, cooking. You get asked some really humiliating questions about are you able to wash yourself from the waist down and that kind of thing. And then there's a point scoring system on each of the various tests.

7:03And they changed the rules so that unless you got a minimum of four points in any of the categories, you would not any longer be eligible for personal independence payment. And that was how they came up with this relatively big number. But right as an early stage, both disability charities and lots of Labour MPs started saying, both publicly but also privately, to the party managers in Parliament, the whips, and also to officials in Downing Street, they thought that this would take money away from people who really deserve the money, really vulnerable people, people who are living on the breadline.

7:48And the government itself published research that showed that these changes would tip 250 ,000 people into poverty. But throughout all of this, right, because the Treasury needs the money and because Downing Street believes that it's a sign of, you know, the reforming zeal, the direction, the strength of the prime minister, Downing Street refused to listen to these protesting MPs. In fact, worse than that, there were some officials from Downing Street who went to have meetings with MPs. And, you know, I've been told by those MPs that they were shouted at by these Downing Street. There's one Downing Street official in particular.

8:35And, you know, I was told of a meeting in which a couple of MPs were in tears as a result of this. Because for a lot of MPs, this is a deeply emotional issue, protecting vulnerable people. It's why many people who are Labour MPs went into politics, because they want to protect vulnerable people. I've made the analogy elsewhere that lots of Tories went into politics because they wanted to take us out of the EU because they hate Brussels. The equivalent for that a lot of Labour MPs is to make sure that vulnerable people get welfare support. So for many Labour MPs, the idea that a Labour government would force these vulnerable people into poverty, it was a sort of nightmare.

9:19But Downing Street just refused to listen to their concerns and basically did not treat MPs as essentially, you know, autonomous elected individuals with responsibility to their constituents. They treated them, to use that phrase, as lobby fodder. They basically said to them, you are our servants, you will do what we tell you. And there were very few MBs. That's not a way to run anything, is it? It's not a way to run anything. It was an absolute calamity. And by the way, the whips, in the cases of the top ones, their senior long-serving politicians, they kept telling Downing Street that they were behaving like idiots, that this was no way to manage the party.

10:10The whips knew what was going on. But as late as last Wednesday, Downing Street was telling the rebels, if you vote against, you will never get a job in the government. You will never be on the payroll. It was all. And that is not democracy. Oh, my God. It was all stick, right? No, no carrot. Then, of course, on the Thursday, when we see some very moderate MPs put down this amendment, and this in itself was almost without precedent, a party's own MPs in huge numbers, 126 of them, putting down an amendment of legislation at second reading which would have killed the bill. And suddenly Downing Street, because they can see the names printed on the amendment for the first time, Downing Street take this seriously and they panic.

11:10And so the first manifestation of the panic is that they say, OK, we've listened to you and none of these reforms will apply to those who are currently claiming the personal independence payment. and they said that they would protect those people from the changes to universal credit. And at the time, I have to say, it was a massive capitulation. That in itself cost the Treasury two and a half billion, so half of the savings that they were looking for. Yeah, it was a massive humiliation for the prime minister. I have to say at the time, I did think that they'd probably done enough to get their bill through, except for one thing.

12:02They then made this public statement that said, in order to give more reassurance to these rebel MPs, that they were setting up a review under a disability minister called Stephen Timms, who's been in Parliament for years and years and years, that would, in a fundamental way, look at these rules for who is entitled to personal independence payment. And this was the really important point, that he wouldn't just consult disabled people and disability rights group, that he would, in a sense, have a partnership with them in producing this document. It would be a co-production between the government and the disability rights groups.

12:49And this was intended to reassure those who were concerned about the reforms. But it did, in a way, the total opposite, because simultaneously, at exactly the same time as saying, you know, this will be a reform driven by disabled people. They also said, by the way, this review is not going to report till the autumn of 2026. And because of that, anybody claiming PIP from November 2026 will be subject to that four point rule, which I've described, which lots of people think is totally unfair. So they were simultaneously saying there was going to be a proper review led by disabled people. But by the way, they'd already made up their minds that that Treasury driven cost saving measure was still going to happen for new claimants.

13:50And it just took so many MPs and disability rights groups looked like a total contradiction because it was a total contradiction. And when I was watching the debate yesterday, I could just feel the argument moving against the government because MP after MP, some of them almost in tears stood up and talked about, you know, the experience of their constituents. You know, some of them were really appalling, life-threatening conditions and the anxiety of these people about, you know, whether or not they were going to continue to be supported by the state. You know, it was a really upsetting debate to hear.

14:33And I could, as I say, I could feel support for the government ebbing away. So at that point, the government panics again. And Angela Rayner, the deputy prime minister, and Liz Kendall, the work and pension secretary, then ring up potential rebels. And rather than threatening, they basically say to them, what on earth can we do to save our bill? and they then right at the last moment come up with a further change a further u-turn which is to say that they are no longer imposing the four point threshold rule and that there will be no changes at all for pip claimants until tims is reported and it will be the tims review which will determine essentially the new rules for claiming Pip.

15:20Now, common sense tells you there will be no reform this parliament because we'll be into an election cycle. Almost anything that he proposes will be controversial. And so it's sort of in the way that Theresa May killed off the idea of social care reform by prematurely announcing reform of the system with her so-called death tax during the 2017 general election, this incompetence has killed off any chance of reform of personal independence payments for years, if not forever. Yeah. And in the meantime, you have got lots of really frightened people who are worried about what's going to happen to them.

16:01I mean, I was, you know, Tani Grey Thompson is a friend of mine, you know, amazing Paralympian. Several things that she's been saying in this, it does need proper reform, but there's a real lack of understanding as well about what PIP actually is, because it is not a benefit. It's not an in or out of work benefit. It's actually a qualifying one. It's one where people, as you say, have to fulfil this very stringent criteria in order to determine whether they get this benefit or not. It's not about a work benefit. So there's this massive misunderstanding about that. But also you hit the nail on the head when you said it's humiliating and this is a is a huge problem so I recently was at this charity centre in Middlesbrough called the Junction Multibank run by this amazing maverick woman called Beth now this is a business which basically takes surplus stock from places like Amazon it was you know Gordon Brown did this in Fife didn't he with a big Amazon distribution centre there and set up this kind of charity with surplus stock and now there's one in Middlesbrough.

17:15It's been going since November last year and the way it works is they get all this surplus stock and then they basically dish it out in kind of emergency packages and things to people who need it and it's you know things like hygiene products, it's school uniforms for kids, It's, you know, crockery. It's loads of different things. And, you know, I spent a few hours there and saw that just in those few months that they've been going. So they're not even been going a year yet. They have handed out over 13 million goods. They've helped nearly 80 ,000 households. And when you're looking at individuals, they've helped.

17:58It's something like 185 ,000 individuals. They're working with over a thousand referral partners. And what Beth said to me was not once in the time she has been running this has she come across someone taking the mick, someone who's come in and is just like wanting something because they're going to swizz the system. She's like, people are desperate. They are, you know, if you look at the stats about poverty, that nearly half of the kids where I grew up in the Tees Valley region are experiencing poverty. It's like 47%. It's twice the national average. Beth told me when I was there that there is 25 million pounds worth of benefits that go unclaimed in Middlesbrough.

18:46And this is because it's people who are scared about the stigma. They're scared about not understanding the bureaucracy of things. they don't even know what they're eligible for or not it's not people taking the mick and don't get me wrong I'm sure there might be people now listening to this who'll go well I know someone who is anecdotally yes there might be some people out there but on the whole there's a lot of desperate people who are frightened and need the support that they're not getting like charities like the multi-bank and there'll be loads of different ones in different parts of the country like this shouldn't exist they shouldn't exist and so yeah what really stood out to me and I was there with Liz who runs the charity I'm a patron of rubies which particularly helps helps girls in Middlesbrough what really stood out to me was the the the level of poverty it's not people who are wanting you know anything fancy it's real basics like soap and even like bits for school like liz was saying to me loads of the girls that she works with keep getting sent home from school because they haven't got the right protractor or compass and things like the really ridiculous things and so this charity even had like boxes of protractors and compasses and all bits and bobs scientific calculators to hand out to people so there's a real lack of understanding from politicians about what the reality is out there and what these charities and these referral centres and things like that are having to do to pick up the slack of people who aren't getting the help they need from the from the benefit and the welfare system and it's a mess and if you've got people like tanny gray thompson saying it needs proper reform you what are we doing look Look, to be clear, there is also, interestingly, a sort of generational difference.

20:41I mean, it's striking to me that, you know, politicians from a different age, Gordon Brown, absolutely obsessed with combating poverty. He has been this amazing driving force, as you say, behind multi-banks. But we shouldn't need them. As you say, in a rich country like the UK, we shouldn't need them. But what I do want to do is broaden this away from just the battle against poverty, but into why what happened yesterday has, you know, shredded, frankly, this government's economic reputation. And, you know, maybe have some thoughts about what they can do about it, but why this is such a big moment.

21:19But should we do that after the break? Yes. Good idea. Right. We'll be back with you in a couple of minutes. Hello everyone, it's Gary Lineker here from The Rest Is Football. Just a quick message to tell you all about the Club World Cup tournament that's taking place in the US at the moment. It's 32 of the best teams from all around the world battling it out to be crowned the best side on the planet. We've reached the knockout stages of the competition which means all the big guns will be going head-to-head. Manchester City, Real Madrid, PSG, Chelsea and Bayern Munich just some of the sides vying to lift the trophy.

21:54Join myself, Alan Shearer, Micah Richardson, our expert out in America, Alex Aljo, as we guide you through the explosive final stages of the tournament. To make things even better, if you're watching the video version of the show on Spotify or YouTube, you can also watch all the goals and the best bits of the action as we discuss the games. A first for podcasting. Just search The Rest is Football wherever you get your podcasts. Welcome back to The Rest is Money with me, Steph McGovern. I'm with me, Robert Paxton. Shall we talk now about where this leaves us? Because clearly it's a mess. But what happens next?

22:32Because now is going to be endless chatter about whether fiscal rules need to change, about whether we're going to get tax rises in the autumn budget. All these things we definitely didn't want because that uncertainty has now, it feels like, just exponentially grown in terms of what we've all got to face now over the next few months and what's going to hit us, whether you're a business owner or you're someone who's, you know, on PIP or whatever. It feels like there's so much uncertainty now there. But what do you think is going to happen, Robert? So it's like a Shakespearean tragedy. You know, you've got a chancellor, Rachel Reeves, who built her entire reputation around being so-called fiscally credible.

23:17and she sort of hoist herself on her own petard. I mean, let's just go back to the spring statement, right? After the welfare cuts, she does have so-called headroom, according to the OBR. She is hitting her fiscal targets, but by the tiniest of margins,£9.9 billion, which in terms of so-called headroom, that's the cushion that absorbs economic shocks. That's tiny compared to the kind of headroom we've seen from previous chancellors, which is sort of average 30 billion or so. But nonetheless, she's hitting her targets as a result of seeming to be tough on on welfare. Well, you know, as we talked about earlier, five billion pounds of that headroom has been wiped out by the U-terms on disability reforms.

24:12there's I think something like one and a quarter billion wiped out by the U-turn on the winter fuel payment which is a very very very similar debacle a cut that was imposed to show that they were fiscally tough that they were going to get borrowing under control that they couldn't sustain because it was politically unpopular and they therefore reversed so two-thirds of the headroom already gone. Almost every economist who's been following the underlying performance of the economy thinks that the rest of the headroom and more has been wiped out by the fact that the economy has been slowing. You can blame Donald Trump for that if you want to, or you can blame the government's decisions to put up employers' national insurance.

25:09Pay your money takes your choice about what the causes of a lacklustre economic performance are. But there's no question that despite the fact we had a very good first three months of the year, things have slowed down since then. The respected Independent National Institute for Economic and Social Research, or NISA, came up with, I mean, I have to say, I think it's over the top, but they came up with a forecast a few weeks ago that she was something like just under£60 billion shy of hitting her fiscal targets come the autumn. Now, I think that's over the top. I don't believe that the Office for Budget Responsibility say that she has to raise that order of magnitude.

25:51But let's just, for argument's sake, say it's£20 billion or so, which seems to me to be probably the right kind of ballpark. The problem that she has created for herself is that she's sort of demonstrated to the world that this is not a government that can do cuts, right? The bill is still going through Parliament. It's now become a giveaway bill, right? It's putting up the level of universal credit. It is spending more on, which this is a good thing, on work coaches to help vulnerable people into work, a billion pounds more on that. It is true that there is long-term reform that will cost disabled people money to the health element of universal credit, but the basic level of universal credit is legislating to go up.

26:45So what this government now looks like is a government that can only give money away. It can't do cuts. So what does that mean. It means that if she is going to hit her fiscal targets in the autumn, she has no option but to raise taxes. Because what's just been revealed is her MPs will stop her from making cuts. But if you're a government that claims to have as its central goal restoring the growth of this economy and that way increasing tax revenues the worst thing you can do is signal to markets that every time you're in danger of missing your fiscal rules taxes are going to go up because that does not look like a government that understands how you generate growth.

27:38Do you think they're going to have to lose the mantra about not taxing working people? this sense that they don't want to look like it's going to be working people who are being hit but you know for example with the national insurance contribution I was talking to a supplier of a well-known supermarket the other day and they said they literally just got a call from the supermarket when it all came out saying we're just passing the cost on to all the suppliers so even though the suppliers themselves have got this increase in the national insurance contributions bill They're also taking the hit of the business they supply.

28:19And inevitably, because of that, they've had to make cuts to their staffing numbers. They've had to, you know, essentially hit the working people. And similarly, you know, if we look at something like the income tax thresholds, they've said, you know, they are going to get rid of them, but not until 2028. And if you look at things like the IFS's analysis of this, this is going to bring four and a half more million people into the higher tax bracket by 2028. And there's every chance they're going to carry on the threshold freeze and still say this isn't an increase in tax on working people, but it will be.

29:00So do they need to just lose that mantra and actually just tax where we need tax increases to happen and not try and paint it as this, you know, working class, working heroes? We're not going to get you when indirectly you do anyway. I mean, look, rationally, they should spread the burden as widely as they can, but they can't do that because their manifesto absolutely commits them to not putting up income tax, corporation tax, VAT and employees, national insurance. They recognize, and this is a fact, that, you know, trust in politicians, trust in politics is at an all time low. They know that each time a political party breaks a promise that it's made during an election campaign, you know, voters say, oh, God, what is the point of believing a word any politician ever says to me?

30:04And, you know, it increasingly turns people either off politics or shifts them to back extremist positions. So, you know, they would argue it was a tactical success making those pledges not to increase the big taxes. But they're not honouring it. But let me just finish this point, because they would argue it helped them to win the election. I would argue they would have won the election anyway. And it was plainly a strategic mistake to make those pledges because there is no doubt in my mind that for a government that says that it wants to increase the growth rate of the British economy, raising that money, that big chunk, 25 billion from putting up employers' national insurance was pretty much the worst tax that they could have increased.

30:57It would have been way better, I'm afraid to say. I mean, none of us like a rise in income tax. But if there'd been an income tax rise, essentially across the board, maybe affecting all rates, that would have been a less economically damaging way, particularly at a time, as we all know, there are a lot of very, very, very, very poor people on low incomes. They, of course, would never pay any tax rise because they're not earning enough. But vast numbers of people who do pay tax, their savings are currently at really pretty high levels. You know, there is an argument for saying, wish they didn't save quite as much, wish they spent a bit more because it would get some momentum into the economy.

31:37But, you know, there was a way, frankly, of putting up income tax that would have done less economic damage than the economic damage arguably they did by putting up employers' national insurance. But this goes into just the wider problem. And this seems to me to be the tragedy of this government, which is it talks the talk of growth. But then it simply appears because it doesn't have anybody at the top who seems to get how you drive growth. It just doesn't have a coherent plan to get the economy motoring. I read its industrial, one of the few people in the country who read its industrial strategy, every single bloomin' page of it.

32:24There's some pretty good things in there. You will have noticed how Meta was basically stealing, you know, artists' information. I discovered that my books had been used by Meta's AI as part of its training. and one initiative in there this was a really interesting idea would be a world first it would be government sponsored it wouldn't necessarily be government owned which would be this marketplace where you and i could simply post there a bit like ebay our creative assets and we would say you know here it is you want to use this you have to come to me and we have to agree terms a genuinely imaginative policy i only found out about it because i read the report and then i because I know Sridhar Vadira, I talked to her about it.