Rachel Reeves will unveil further welfare cuts in her spring statement after being told the reforms announced last week will save less than planned, Sky News understands.
The fiscal watchdog put the value of the cuts at £3.4bn, leaving ministers scrambling to find further savings.
Ms Reeves is now expected to announce that universal credit (UC) incapacity benefits for new claimants, which were halved under the original plan, will also be frozen until 2030 rather than rising in line with inflation
As originally reported by The Times, there will also be a small reduction in the basic rate of UC in 2029, with the new measures expected to raise £500m.
A Whitehall source told Sky’s political editor Beth Rigby that it is “hard to tell how MPs will react”, as while the OBR’s assessment means fewer people will be affected by the PIP changes than thought, they “might be unhappy about the chaotic nature of it all”.
Several Labour MPs criticised the measures as pushing more sick and disabled people into poverty, while former Labour leader Jeremy Corbyn called the package a “disgrace” on Tuesday and accused the government of imposing austerity on the country.
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13:10
‘Labour MPs are upset’
Spending cuts expected
Ms Reeves is expected to announce a large package of departmental spending cuts when she gives an update on the economy on Wednesday, potentially putting her on a further collision course with her own MPs.
Having only committed to doing one proper budget each year in the autumn, the spring statement was meant to be a low-key affair.
However, a turbulent economic climate since October means the OBR is widely expected to downgrade its growth forecasts for the UK while the government has borrowed more than previously expected.
This has wiped out the Ā£9.9bn gap in her fiscal headroom Ms Reeves left herself at her budget last year – money she needs to make up if she wants to stick to her self-imposed fiscal rule that day-to-day spending must be funded through tax receipts, not debt, by 2029-30.
In a bid to fend off criticism, she will also announce an extra Ā£2.2bn will be spent on defence over the next year to “deliver security for working people”.
The money is part of the government’s aim to hike defence spending to 2.5% of the UK’s economic output by 2027 – up from the 2.3% where it stands now.
Ms Reeves will insist this plan, set out by the prime minister in February, was the “right decision” against the backdrop of global instability, saying it will put “an extra 6.4bn into the defence budget by 2027”.
“This increase in investment is not just about increasing our national security but increasing our economic security, too,” she will say.
The money is coming from reductions to the international aid budget and Treasury reserves, and will be used to invest in new technology, refurbish homes for military families and upgrade HM Naval Base Portsmouth.
Keir Starmer flies out of South Africa this evening with two massive issues on his agenda – a potentially manifesto-busting budget and, as it stands, an unacceptable Ukrainian peace deal.
As he prepared to depart for London, the prime minister confirmed he was dispatching national security adviser Jonathan Powell to Geneva for talks with US officials, other European security advisers and Ukrainian representatives – as Europe and Ukraine scramble to reinsert themselves into a plan drawn up between Washington and Moscow.
The prime minister said on Saturday there was “more to do on the plan” in the coming days and the focus now was to try to make progress in Geneva.
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3:08
PM: ‘More to do’ on US Ukraine peace plan
After speaking on the phone to Donald Trump, Downing Street said the pair agreed their teams would work together on the US leader’s proposal in the Swiss city on Sunday.
Starmer also reiterated Britain’s “steadfast support for Ukraine” in a call with President Zelenskyy – as allies try to swing this deal more in Ukraine‘s favour, with the UK and other international leaders clear on their concerns to limit the size of the Ukrainian army and give up territory to Russia.
But in his remarks on camera, the prime minister was at pains to neither criticise the current deal nor President Trump.
One figure told me that the PM wants to act as a bridge between the Europeans and the US and has been playing a “game of whack-a-mole” over the past couple of days in an effort to keep others from publicly saying the deal is unacceptable for fear it would only serve to irritate President Trump and hurt Ukraine.
Image: File pic: Reuters
Earlier, the prime minister said he would talk to his US counterpart in the coming days.
“I’m absolutely clear in my mind that President Trump wants a just and lasting peace, not just from the actions he’s taken towards that end, but also from the private discussions that I’ve had with him,” Mr Starmer said.
“So I know what he’s trying to achieve. We all want to achieve that.”
But there will be a question about what the alternative options are if allies cannot improve this deal by President Trump’s Thursday deadline.
Image: The frontline in eastern Ukraine
The first option is to try to improve it and also slow down the process and buy more time, but if that fails, are allies looking at scenarios where they try to shore up Ukraine’s war efforts without the US support?
The prime minister responded by talking about point five in the 28-point plan, in which Ukraine is offered security guarantees from the US.
“That fortifies in me the belief that what we’re all trying to achieve here is a just and lasting peace will only be just as lasting if there are security guarantees,” Mr Starmer said.
“And if we bear in mind that matters for Ukraine are always to be determined by Ukraine.”
The next 24 hours will be critical as the Europeans, Ukraine and other allies try to improve this deal.
The prime minister has refused to rule out manifesto-breaking tax hikes in next week’s budget while speaking to Sky News political editor Beth Rigby.
Sir Keir Starmer was interviewed by Rigby while the pair were in South Africa for a meeting of the G20 group of nations.
Despite the government last year indicating it was not going to raise more taxes, it appears that Wednesday’s fiscal event will involve substantial increases in levies.
The 2024 Labour manifesto said: “We will ensure taxes on working people are kept as low as possible.
“Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.”
At the start of their interview, the prime minister was asked by Rigby if it was important for politicians to “stick to their word”.
Sir Keir said: “Yes, it is important that politicians stick to their word.
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“They have to make decisions against a political backdrop. And, we’ve also got big decisions to make in the budget that’s coming in just a few days time.”
This caveat matches the expectations that a range of taxes are going to be increased so the government can keep its spending pledges and increase its fiscal headroom amid worsening economic headwinds.
There was chaos last week after the increase in income tax that many had expected to be on the way was revealed to no longer be on the cards.
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3:20
Why has chancellor U-turned on income tax rises?
Asked specifically on the manifesto commitment on tax, Sir Keir told Rigby that decisions will be made “against a very difficult backdrop”.
In total, the prime minister refused 12 times to rule out tax rises.
He added it was “important to take the right decisions for our country”.
Rigby pointed out in the lead-up to the 2024 Budget, the prime minister was more unequivocal, saying income tax, national insurance and VAT would not all go up.
The prime minister declined to make the same promise, saying the decisions on tax will be announced on Wednesday.
However, Sir Keir said the budget will be guided by “principles”, including “fairness”.
The prime minister said the three areas he is “bearing down on” are the NHS, cutting national debt and dealing with the cost of living crisis.
One tax rise that has not been ruled out is what is known as a “stealth tax rise” of freezing income tax thresholds.
Rigby highlighted that in last year’s budget, Rachel Reeves said freezing thresholds will “hurt working people” – and asked the prime minister if he agreed.
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Sir Keir said: “We are going to set out our decisions.
“We will have absolutely in mind that the cost of living is the number one issue for people across the country.”
Pushed again, if working people will have their taxes increased, the prime minister instead mentioned he has people who are “struggling with the cost of living” in mind when making decisions.
Khurram Dara, a former policy lawyer at cryptocurrency exchange Coinbase, officially launched his campaign for New York State Attorney General.
In a Friday notice, Dara cited his āregulatory and policy experience, particularly in the crypto and fintech spaceā among his reasons to try to unseat Attorney General Letitia James in 2026.
The former Coinbase lawyer had been hinting since August at potential plans to run for office, claiming that James had engaged in ālawfareā against the crypto industry in New York.
Until July, Dara was the regulatory and policy principal at Bain Capital Crypto, the digital asset arm of the investment company. According to his LinkedIn profile, he worked as Coinbaseās policy counsel from June 2022 to January 2023 and was previously employed at the crypto companies Fluidity and Airswap.
James, who took office in 2019, has faced criticism from many in the crypto industry for filing lawsuits against companies on behalf of affected New Yorkers, including Genesis, KuCoin and NovaTech. Whoever assumes the role of New Yorkās attorney general would have significant discretion over whether to file charges against crypto companies.
Dara, who said he plans to run as a Republican, also echoed Mayor-elect Zohran Mamdaniās recent winning campaign, citing New Yorkersā concerns about the cost of living and affordability. Cointelegraph reached out to Dara for comment, but had not received a response at the time of publication.
The lawyer who represented XRP holders is also running for office again
As the deadline approached for candidates for various offices to announce their runs, former Massachusetts senatorial candidate John Deaton said he would try to unseat a Democrat again.Ā
Deaton ran against Senator Elizabeth Warren in 2024, losing by about 700,000 votes. On Nov. 10, however, he announced he would run as a Republican again, attempting to unseat Senator Ed Markey in 2026.
Deaton gained recognition in the crypto industry by advocating on behalf of XRP holders in the US Securities and Exchange Commissionās lawsuit against Ripple.
Like Dara, Deaton will be running in a race that largely favors Democrats: The last Republican to win a US Senate seat for Massachusetts was in 2010. Both candidates are expected to face competition in their respective Republican primaries.