Reeves May Face Tax Rises if Labour Rebels Sink Welfare Reform Bill, Economists Warn
Rachel Reeves could be forced to raise taxes if Labour backbenchers derail the government’s flagship welfare reforms, economists have cautioned.
The Chancellor’s £9.9 billion of fiscal headroom, outlined in her Spring Statement, risks being wiped out if the welfare Bill is voted down in the Commons on Tuesday.
Defeat would leave Reeves with a difficult choice: raise taxes, cut public spending elsewhere, or increase borrowing to stay within her fiscal rules.
According to the Office for Budget Responsibility (OBR), the proposed changes to incapacity and disability benefits are projected to deliver £13.7 billion in savings by 2029/30—£9.2 billion of which would come from scaling back Personal Independence Payments (PIP).
However, the reforms have sparked a fierce backlash among Labour MPs, with around 127 backbenchers reportedly threatening to vote against the plans.
Ben Caswell, senior economist at the National Institute of Economic and Social Research (NIESR), said: “If the Government is unable to pass this bill, the cost would be large enough to erase the narrow £9.9bn headroom against the Chancellor’s stability rule, putting her in an even more difficult position in the autumn.
“She’ll be forced to either cut spending or raise taxes if she wants to meet her own fiscal rules. More strategic, well-communicated policymaking could ease the political turbulence and reduce economic disruption—especially given the current low levels of consumer and business confidence.”
He added: “Clarity, consistency, and a stronger fiscal buffer are crucial for building credibility. That may require unpopular tax hikes this autumn, but it’s preferable to the ongoing uncertainty caused by short-term policy fixes.”
