The government has made an offer to rebel Labour MPs over its controversial welfare reforms, Sky News understands.

More than 120 Labour MPs were poised to vote against the Universal Credit and Personal Independence Payment (PIP) Bill on Tuesday.

The changes come after a ring-around by cabinet ministers failed to bring rebels on side.

The bill was intended to restrict eligibility for the PIP – the main disability payment in England- and limit the sickness-related element of universal credit, to help shave £5bn off the welfare budget by 2030.

‘We have listened’

N.10 said in a letter to MPs: “We have listened to MPs who support the principle of reform but are worried about the pace of change for those already supported by the system.

“This package will preserve the social security system for those who need it by putting it on a sustainable footing, provide dignity for those unable to work, supports those who can and reduce anxiety for those currently in the system.

“Our reforms are underpinned by Labour values and our determination to deliver the change the country voted for last year.”

Liz Kendall, the welfare secretary, said there would be two changes to the bill, including ensuring that all of those currently receiving PIP “will stay within the current system.

“The new eligibility requirements will be implemented from November 2026 for new claims only,” Ms Kendall said.

“Secondly, we will adjust the pathway of Universal Credit payment rates to make sure all existing recipients of the UC health element – and any new claimant meeting the severe conditions criteria – have their incomes fully protected in real terms.”

Sky News political editor Beth Rigby was earlier on Thursday told existing PIP claimants will be able to keep their payments, which means 370,000 people will not lose out.

This will cost the government at least £1.5bn, according to the Institute for Fiscal Studies.

Sky News understands that a senior source has accepted the change, but it will be up to each individual rebel to make a decision on whether to withdraw.

The source said they think the changes are a “good package” with “generous concessions”.

Politics latest: Government to make offer to rebels

A reasoned amendment signed by 126 Labour MPs argued that disabled people had not been properly consulted and further scrutiny of the changes is needed. If passed, this would have killed the bill.

Sky News understands that some senior rebels are willing to accept the concessions – with one saying that “the concessions will be positively received, and I expect to vote with the government now”.

Other MPs who had not wanted to rebel were also expecting to change their votes.

However, several Labour MPs on the left of the party have gone public to say they will still oppose the government, including Diane Abbott, Richard Burgon, Nadia Whittome and Brian Leishman.

Conservative shadow chancellor Sir Mel Stride said the change would mark a “screeching U-turn” – and claimed the changes mark “another unfunded spending commitment”.

Meanwhile, Helen Whately, shadow work and pensions secretary, said: “This is another humiliating U-turn forced upon Keir Starmer.

“With the sickness benefits bill set to reach £100 billion by 2030 the country needs action. But Labour has lurched from a bad plan to a next-to-nothing plan.

“The latest ‘deal’ with Labour rebels sounds a lot like a two-tier benefits system, more likely to encourage anyone already on benefits to stay there rather than get into work.”

What is PIP?

The biggest shakeup to the system involved changes to PIP – money given to people, including some of whom are in work – who have extra care needs or mobility needs as a result of a disability.

People who claim it are awarded points depending on their ability to do certain activities, such as washing and preparing food, and this influences how much they will receive.

From November 2026, people would have needed to score a minimum of four points in at least one activity to qualify for the daily living element of PIP – instead of fewer points spread across a range of tasks.

This would have impacted existing claimants as well as new ones. The government’s concessions are understood to see this change dropped for existing claimants.

Universal credit

The government intended to freeze the health element of universal credit, claimed by more than two million people, at £97 a week during this parliament, and cut the rate to £50 for new claimants.

Again, it’s understood the government’s concessions mean this change now won’t apply to existing claimants.

First there was stonewalling, then the private complaints from MPs before a very public outburst that saw an eye-watering 127 MPs tell their prime minister they were going to defy him on a welfare vote.

Now, the inevitable climbdown has arrived, with Downing Street making a significant offer to rebels last night on their planned cuts to disability benefits.

A government with a massive 165-strong working majority, had an awakening on Thursday to the importance of parliament as it embarked on a humiliating climbdown after the private warnings of MPs to Downing Street fell on deaf ears.

It’s worth taking a beat to reflect on the enormity of this moment. Less than a year ago, the prime minister was walking into No. 10 having won a landslide, with a Labour majority not seen since the Blair era.

That he has been forced to retreat by angry foot soldiers so early in this premiership, despite having such a big majority, is simply unprecedented. No government has lost a vote at second reading – this basically the general principles of a bill – since 1986 (Thatcher’s shops bill) and that was the only occasion a government with a working majority lost a bill at the second reading in the entire 20th century.

It is obviously a humiliating blow to the authority of the prime minister from a parliamentary party that has felt ignored by Downing Street. And while No. 10 has finally moved – and quickly – to try to shut down the rebellion, the fallout is going to be felt long beyond this week.

Before we get into the problems for Starmer, I would like to acknowledge the predicament he’s in.

Over the past 10 days, I have followed him to the G7 in Canada, where the Iran-Israel crisis, US-UK trade deal and Ukraine war were on the agenda, to Chequers at the weekend as he tried to deal with the US attack on Iran and all the risk it carried, and to the NATO summit this week in the Netherlands.

He could be forgiven for being furious with his operation for failing to contain the crisis when all his attention was on grave international matters.

He landed back in Westminster from the NATO summit on Wednesday night into a domestic battle that he really didn’t need but moved quickly to contain, signing off a plan that had been worked up this week in Downing Street to try to see of this rebellion.

What will the changes be?

At the time of writing this, the government is yet to officially announce the climbdown, but I expect it to be significant.

I understand the government is offering to keep personal independence payments, the benefits given to those who are disabled, unchanged for existing claimants, rowing back on an initial plan to take it away from hundreds of thousands of people by tightening the criteria for claiming.

I also understand the government will drop the cuts to the health element of universal credit for existing claimants, in changes that will cost an estimated £1.5bn – nearly a third of the savings the government has previously earmarked from these changes.

One senior parliamentary source told me on Thursday night they thought it was a “good package” with “generous concessions”, but said it was up to individual MPs to decide whether to withdraw their names from the amendment that would have torpedoed the welfare bill.

In the coming days, No. 10 will have to make the case to backbenchers and whittle down the rebellion in order to get the welfare bill passed on Tuesday. But it’s clear that No. 10 has given MPs a ladder to climb down.

But the bigger question is where does it leave the government and its party.

There is quiet fury from many MPs I have spoken to, angry at the No. 10 operation and critical of what they see as a “boy’s club”.

There has been criticism levelled at the PM’s chief of staff Morgan McSweeney, with MPs in seats facing challenge from the left rather than the right frustrated that the whole No. 10 strategy seems to be seeing off Reform, rather than look to the broader Labour base and threats from the Lib Dems or the Greens.

There is also much ire reserved for Rachel Reeves – interestingly Liz Kendall is escaping the criticism despite being the architect of the reforms – with MPs, already angry over winter fuel debacle, now in open revolt over the chancellor’s decision to force through these cuts ahead of the Spring Statement in March in order to help fill her fiscal black hole.

MPs felt talked down to

One Labour figure told me on Thursday the growing drumbeat in the party is that Reeves must go.

Another MP told me colleagues hated the cabinet ring around to try to persuade them to back down over welfare, saying more MPs ended up adding their names to the list because they felt talked down to.

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All of this needs work if the PM has any hope of rebuilding trust between his party and his operation.

There is also the problem of what flows from the concessions.

The chancellor will have to fund these concessions, and that could mean hard choices elsewhere. Will this mean that the government ends up doing less on reforming the two-child cap, or will it have to find welfare cuts elsewhere?

That flows into the third problem. In seeing off this rebellion No. 10 has contained MPs rather than converting them.

What the parliamentary party has seen is a government that, when pressed, be it on winter fuel or benefit cuts, will fold.

That will only serve to embolden MPs to fight again. In the immediate term, the government will hope it has seen off a potentially catastrophic defeat.

But seeing off the growing malaise around the Starmer administration just got a bit harder after this.