Turmoil as No 10 forced to admit welfare won’t be cut by next election

Chancellor John Healey faces mounting scrutiny over an estimated £11 billion gap in his defense spending plans, a shortfall identified by independent economists following his recent Budget announcement. The controversy centers on the government’s pledge to raise defense expenditure to 3 percent of Gross Domestic Product by 2030 and to meet the North Atlantic Treaty Organization target of 3.5 percent by 2035. Despite these commitments, the former Defense Secretary declined to specify how the additional funding would be secured, stating that details would emerge next year. This silence has fueled accusations within the Conservative Party and among some Labour peers that the administration lacks a concrete strategy and is effectively stalling on critical security preparations. Helen Miller, Director of the Institute for Fiscal Studies, stated that the government requires an additional £11 billion to achieve the 2030 target. She noted that the Office for Budget Responsibility estimates the 2035 ambition would incur costs of £35 billion. Miller expressed skepticism regarding the likelihood of delivery, citing historical patterns where chancellors fail to adhere to tight future spending forecasts. She described herself as "grumpy" over the proposal to draw from capital reserves to cover a £4.7 billion deficit in the Defense Investment Plan left by the previous administration. An unnamed IFS official warned that achieving these goals would necessitate painful cuts elsewhere in the public purse. The political backlash extended beyond party lines. Admiral Lord West, a Labour peer and retired Royal Navy officer, accused Healey of betraying the armed forces by delaying decisive action on funding. He characterized the situation as a failure to support the military adequately. This critique arrived shortly after Wes Streeting, the current Defense Secretary, warned that the nation had approximately 1,000 days to prepare for potential conflict. The tension reflects earlier disputes between Healey and former Prime Minister Sir Keir Starmer, with whom Healey clashed over defense budgets. Healey resigned as Defense Secretary in June, accusing Starmer of being unable to secure necessary funds. Shadow Defense Secretary James Cartlidge criticized the Budget for leaving a "massive black hole" in defense financing, labeling it another broken promise from the Labour government amid growing global threats. Simultaneously, Healey navigated a separate crisis regarding the management of the welfare bill. During an interview on BBC Radio 4’s Today program, he stated that there would be a reduction in the benefits bill before the next general election, which must occur by August 2029. He specified that the government would pursue this goal in a "Labour way," implying structural changes rather than immediate austerity. However, the Treasury subsequently disputed this interpretation, and Downing Street issued a hurried statement denying that any specific timetable or target had been set. Prime Minister Andy Burnham clarified that the government aims to reduce the welfare bill "as soon as we possibly can" but rejected the notion of arbitrary deadlines. The confusion prompted immediate reactions from opposition parties and economic observers. Conservative leader Kemi Badenoch accused the government of allowing the country to drown in an out-of-control welfare system. The Centre for Social Justice warned that the £33 billion in implicit tax resulting from frozen income tax thresholds would be offset by a £3 billion increase in benefits spending. Helen Miller of the IFS argued that Healey’s Budget exposed Britain to future economic shocks and failed to address what she termed the worst decade for household income growth on record. She contended that temporary cost-of-living packages were insufficient to fix underlying economic weaknesses. The Office for Budget Responsibility projects that the benefits bill will exceed the government’s spending cap by £2.8 billion in the 2029-30 fiscal year. Health-related benefits are a primary driver of this trend, with the OBR forecasting that total costs for these benefits will surpass £100 billion by the end of the decade. Three-quarters of these payments are expected to go to working-age adults. Data indicates that the number of individuals receiving incapacity benefits rose from 2.5 million in 2019-20 to 3.7 million in 2025-26. Similarly, the caseload for disability benefits in England and Wales increased from 4.7 million to 6.9 million over the same period. The total welfare bill is projected to reach £353 billion this year, representing a £19 billion increase, with forecasts pointing to £431 billion by 2031-32. To address these issues, the government is relying on two major reviews scheduled for publication in November. One, led by former cabinet minister Alan Milburn, focuses on young people aged 16 to 24 who are not in education, employment, or training. Insiders suggest the review proposes a ten-year framework for reform, acknowledging that immediate savings will be limited and that initial investments in support services may be costly. The second report, co-chaired by Sir Stephen Timms, examines failures within the disability benefits system. Healey indicated that the government will respond to these findings with a White Paper early next year, followed by legislative proposals. Consequently, significant operational changes to the welfare system may not take effect until 2028. Prime Minister Burnham emphasized that the approach prioritizes moving people into sustainable employment rather than implementing "crude cuts" that could push recipients into hardship. He argued that such abrupt reductions often result in higher public expenditures elsewhere due to social crises. Former Bank of England chief economist Andy Haldane suggested that presenting a credible plan for greater restraint on the benefits bill would improve market confidence. For now, the government maintains that it has not set a fixed deadline for reducing the net cost of welfare, focusing instead on long-term structural adjustments and workforce integration strategies.