Hard-pressed Brits have been warned to brace themselves for tax rises later this year as Keir Starmer pours money into defence and the NHS and Labour MPs vow to block welfare cuts that would help cover the cost.
The PM will join fellow Nato leaders in The Hague today after signing up to the goal of spending 3.5 per cent of GDP on defence.
Another 1.5 per cent will be committed to related measures such as cyber security, under the package demanded by Donald Trump.
However, ministers have refused to say where the UK will find the extra money – around £30billion on top of existing plans – with Rachel Reeves already scrambling to balance the books.
The announcement today comes after the Chancellor committed tens of billions into trying to improve the NHS in her spending review earlier this month.
At the same time, Sir Keir and Ms Reeves are facing a major backbench rebellion over an attempt to claw money back by tightening disability benefit criteria and getting people back into work.
Some 108 MPs have signed a ‘reasoned’ amendment that would effectively kill off the legislation in a Commons vote on July 1.
Sir Keir has also already announced a softening of cuts to winter fuel payments that mean many more pensioners will remain eligible, after a major uproar.
Economist Paul Johnson, director of the Institute for Fiscal Studies, said: ‘If spending goes only one way then so, inevitably, will tax.
‘Historic increases already this decade. Looks like a lot more to come.’
The Nato summit comes after Sir Keir’s meeting yesterday with Volodymyr Zelensky at No10. The Ukrainian president will also be at the summit.
Britain allocated 2.33 per cent of GDP to defence last year, and Keir Starmer has committed to reaching 2.5 per cent by April 2027.
There is an ‘ambition’ of increasing that to 3 per cent at some stage in the next parliament – likely to run to 2034.
At the same time the scale of the welfare rebellion – reaching into every corner of the party – could be enough to overturn the government’s massive majority.
It raises the prospect of Sir Keir being forced into yet another humiliating U-turn – and Ms Reeves having to find a way of covering the £5billion the reforms are meant to save. Just yesterday Ms Reeves was insisting there will be no major concessions.
Touring broadcast studios this morning, Cabinet Office minister Pat McFadden admitted the insurrection was ‘very serious’ and stressed there would be ‘discussions’ with MPs.
Ministers including Deputy Prime Minister Angela Rayner have refused to rule out kicking MPs out of the party if they vote against the change, leading some to threaten to form ‘Labour 2’ if that happens.
The amendment, published on the Commons order paper today, notes there is a ‘need for the reform of the social security system’.
But it calls for the Commons to decline to continue scrutinising the Universal Credit and Personal Independence Payment Bill ‘because the Government’s own impact assessment estimates that 250,000 people will be pushed into poverty as a result of these provisions, including 50,000 children’.
There has been no formal consultation with disabled people who will be impacted by the changes, the MPs said.
They also point to the fact that an analysis of the impact of the reforms on employment from the Office for Budget Responsibility will not be published until the autumn.
Several Labour select committee chairs were among those who put their name to the amendment, including chairwoman of the Treasury committee Dame Meg Hillier, and Debbie Abrahams, chairwoman of the work and pensions select committee.
Helen Hayes, the chair of the education committee who was a shadow education minister for three years under Sir Keir in opposition, also signed it.
She said: ‘Reform of our benefits system is needed, but the cuts to PIP will push some disabled people out of work and increase poverty.
‘That’s unjustifiable. Ministers must rethink to get this right.’
Earlier this month Ms Reeves put a £29 billion-a-year rise in NHS funding at the heart of her spending plans but other Whitehall budgets will be squeezed and experts warned tax rises may be needed later this year.
Ms Reeves acknowledged that ‘too many people in too many parts of our country’ were yet to feel the benefits of the change they voted for when Labour was swept to power last year as she pushed money towards projects outside of London and south-east England.
She insisted she would not need to mount another tax raid to pay for her plans but experts warned the money for the NHS might still not be enough even before the decision to increase defence spending.
