UK Politics

This week’s embarrassing climbdown on welfare saw the government’s benefits reforms gutted almost entirely, while savings from the bill were slashed from £5bn to nothing. In the wake of the U-turn, there are now growing questions over how the government will raise the money to fill the black hole in the public finances.Ministers have already squeezed significant savings out of their departments in cuts that were unveiled at last month’s spending review, meaning there is now a mounting expectation that the chancellor will be forced to raise taxes instead. But Labour’s manifesto pledge not to raise taxes on “working people” leaves the chancellor with a limited number of workable options. A few possibilities were floated by deputy prime minister Angela Rayner in a leaked memo to Rachel Reeves ahead of the spring statement, which saw her urge the chancellor to raise taxes – suggestions which were ignored. But perhaps this week’s welfare climbdown will leave the chancellor with no option but to look again at Rayner’s suggestions. Here, The Independent takes a look at a number of tax rises that the government could rely on to raise funds and balance the books. Tax threshold freezes The Treasury’s most likely move would be to extend the freeze on income tax thresholds. This means that as wages rise with inflation, over the years workers are dragged into higher tax bands and end up paying more. A freeze on the threshold at which the higher 45 per cent tax rate is paid was one of the options suggested by Ms Rayner in her leaked memo. But there is growing speculation the government could extend the freeze across all tax brackets. It’s a stealth tax, the impacts of which are not felt immediately, meaning it is normally better received among the general public compared with a direct hit to businesses or pay slips. But, if the freeze were extended to the end of the parliament, it could also bring in billions for the Treasury as earnings rise. The freeze, which is already planned to last until 2028, is expected to drag around two million workers into higher tax bands.Wealth tax There have been calls from Labour MPs on the left of the party to introduce a wealth tax, calls which have only grown in the wake of Tuesday’s welfare climbdown. Rachael Maskell, the architect of the rebellion which forced the government into shelving key pillars of the bill, demanded the government increase taxes on the very richest to pay for the £5bn climbdown. Polling conducted by YouGov on behalf of Oxfam on the eve of the spring statement found more than three-quarters of people (77 per cent) would rather the government increase taxes on the very richest to improve public finances than see cuts to public spending. However, such a tax – which could look like a 2 per cent tax on net assets worth more than £10m – is thought to be very hard to implement, and could also lead to some of Britain’s highest earners leaving the country. Ms Rayner also called for the lifetime pensions allowance to be reinstated. The allowance, which puts a cap on how much savers can put into their pension pot before a higher rate of tax is applied, was axed by the Tories. Labour had initially planned to reinstate the cap, but the plans were abandoned ahead of the election. However, amid the controversy over cutting winter fuel payments – and then later reversing the decision – the government may be hesitant to introduce any other policies which would upset pensioners. Corporation tax The chancellor could also look at increasing corporation tax for banks – one of the suggestions included in the deputy prime minister’s memo. Politically, its fairly easy to tax banks as there is limited direct impact on voters. But it’s important to note that banks in the UK are already highly taxed. They pay normal corporation tax of 25 per cent, plus a bank surcharge of 3 per cent. On top of this, they pay a bank levy of 0.1 per cent of their balance sheets. The deputy prime minister also proposed raising tax rates on dividends – a portion of a company’s earnings received by a shareholder – for higher earners. Currently, tax is not paid on dividend income that falls within your income tax Personal Allowance. There is also a £500 dividend allowance each year, meaning individuals only pay tax on any dividend income above this. Removing it altogether would be worth £325 million a year, HMRC data indicates. However, there are concerns that raising dividend tax rates could discourage people from investing in companies – which is likely to have a net negative impact on the economy. Ms Rayner also suggested ending inheritance tax relief on shares listed on the smaller Aim stock market. The Aim stock market is a sub-market of the London Stock Exchange. From April 2026, qualifying Aim shares held at the time of death will be eligible for 50 per cent relief from inheritance tax – but Ms Rayner has suggested ending this entirely. While these changes might make businesses uncomfortable, they’re actually unlikely to raise much money for the Treasury – meaning it’s a less likely option for the chancellor. More

There are moments in politics where the situation has spun so badly out of control that somebody has to step in quickly to end the chaos.Most famously in recent history it was former 1922 committee chairman Sir Graham Brady’s visit to Liz Truss in Downing Street to force her to resign after the mini-budget fallout. But last night Keir Starmer had reached such a moment. His government was in meltdown.A brutal 48 hours had seen him apparently lose control of his government’s policy agenda after the welfare reform rebellion by Labour backbenchers. Chancellor of the Exchequer Rachel Reeves (right) crying as Prime Minister Sir Keir Starmer speaks during Prime Minister’s Questions (UK Parliament/PA) More

Welcome to an exclusive Ask Me Anything session with me, John Rentoul, The Independent’s chief political commentator.Keep scrolling for more. If you want to jump straight to the Q&A, click here.Recent attempts by Sir Keir Starmer’s leadership to tackle welfare reform have exposed deep tensions within Labour, shaking its identity to the core.The standoff over disability benefits, with dramatic rebellions from both loyalist and Corbynite MPs alike, laid bare the struggles Labour faces in balancing fiscal responsibility with social justice. Starmer’s handling of the crisis has damaged his standing – and it seems that only deputy leader Angela Rayner emerged stronger, prompting whispers about the future leadership of the party.But the question remains: can Labour survive this identity crisis? Can the party reconcile its historic commitment to working people with the tough policy decisions required in today’s political climate – and craft a credible alternative to austerity without alienating its own members?What about Rachel Reeves, Liz Kendall, and Angela Rayner? Will these recent developments change the balance of power within the party – or push one of them out entirely?Join me live at 2pm BST on Friday, 4 July to discuss Labour’s internal battles, the challenges facing Starmer’s government, and what the future holds for the party.Submit your questions in the comments below. If you’re not already a member, click “sign up” in the comments section to participate. For a full guide on how to comment, click here.Don’t worry if you can’t see your question right away – some may be hidden until the Q&A starts. See you at 2pm! More

A distressed Rachel Reeves shed tears in the House of Commons on Wednesday as Sir Keir Starmer dodged a question over her future on a day when the government appeared to be spiralling out of control.Following a damaging rebellion over welfare cuts by 49 Labour MPs, the prime minister floundered at Prime Minister’s Questions and refused to rule out new taxes to pay for the £5bn funding gap created by his welfare U-turns.A senior Labour figure said the backbench revolt – and the last-minute concessions that hollowed out the welfare bill – were “terminal” for the prime minister’s political prospects.The PM is facing pressure to sack Ms Reeves and his controversial chief of staff Morgan McSweeney, both of whom have been held partly responsible for the welfare fiasco, and there have been renewed calls for a wealth tax to balance the books.And after the Institute for Fiscal Studies revealed that the watered-down welfare reforms would end up costing money rather than saving billions as originally planned, the bond markets also became uneasy.Chancellor of the Exchequer Rachel Reeves (right) cries as Keir Starmer speaks at PMQs yesterday More

MPs have backed the government’s move to ban the direct action group Palestine Action as a terrorist organisation, despite warnings that this would have a “chilling effect” on protest.Legislation passed in the Commons yesterday, as MPs voted 385 to 26, a majority of 359 in favour of proscribing the group under the Terrorism Act 2000.While security minister Dan Jarvis told MPs that Palestine Action as not a “legitimate protest group”, others criticised the move and described it as “draconian overreach” and likened the group to the Suffragettes. Zarah Sultana, the independent MP for Coventry South, told the Commons: “To equate a spray can of paint with a suicide bomb isn’t just absurd, it is grotesque. It is a deliberate distortion of the law to chill dissent, criminalise solidarity and suppress the truth.”The motion is expected to be debated and voted on by the House of Lords today before it becomes law.Meanwhile, pro-Palestine demonstrators have hit out at the government, accusing it of “hypocrisy” as it prepares to ban an activist group under anti-terror law.The decision to proscribe the group comes after two planes were vandalised at RAF Brize Norton on June 20. Pro-Palestine protesters demonstrating outside parliament More

British Prime Minister Keir Starmer’s office said Wednesday that Treasury chief Rachel Reeves is secure in her job after a series of government U-turns dented her revenue-raising plans.Speculation about Reeves’ future mounted after she appeared to be in tears Wednesday in the House of Commons, the day after an embarrassing reversal for the government over its plans to cut welfare spending. Many viewers observed that Reeves looked exhausted and upset as she sat behind Starmer during the weekly Prime Minister’s Questions session.The Treasury said Reeves was dealing with a “personal matter.” It would not elaborate.Starmer initially declined to say, when asked by opposition leader Kemi Badenoch, that Reeves would still have her job when the next election is called, likely in 2029.But Starmer’s press secretary later said Reeves “is going nowhere. She has the prime minister’s full backing.”On Tuesday, Starmer’s government was forced to water down plans to curb welfare spending in order to quell a rebellion by lawmakers from his own party.In something of a hollow victory, the bill passed its first big House of Commons hurdle after the government appeased Labour Party rebels by softening and delaying cuts to welfare benefits for disabled people. Even so, 49 Labour lawmakers voted against the bill.The result is a major blow to Starmer’s authority as he approaches the one-year anniversary of his election on Friday, reckoning with a sluggish economy and rock-bottom approval ratings.It also leaves the Treasury short of money it had counted on to invest in public services, making tax increases more likely. The government has promised not to raise key levies including income tax and sales tax.The government estimated that its welfare reforms would save 5 billion pounds ($7 billion) a year, but after the changes it’s unclear whether they will save any money at all.The reversal follows a decision in May to drop a plan to end winter home heating subsidies for millions of retirees, which Reeves had also counted on to raise money. More

At 5.25pm yesterday disabilities minister Sir Stephen Timms got to his feet in the Commons chamber to intervene on a speech by Labour backbencher Andrew Pakes.His purpose was in effect pull up the white flag on the government’s flagship welfare legislation, in the view that a vote in favour of the government on a completely hollowed out bill was better than defeat. They removed personal independence payments (PIPs) from a bill with the PIPs in the title.Timms is a veteran politician of 31 years in parliament, stoic and understated in nature, thoughtful and careful in speech. He was in many ways the least likely character on the stage to deliver a moment of such theatre.But the hours before that revealed that the real drama was playing out spectacularly in the corridors and corners of the Palace of Westminster, where a defeat for a government with a majority of 156 less than a year into office was becoming a shockingly strong possibility.Starmer defended his position at PMQs More

Tear rolls down Rachel Reeves’ cheek during Prime Minister’s QuestionsDowning Street has insisted Rachel Reeves has Sir Keir Starmer’s full backing after she was seen crying during PMQs.Ms Reeves wiped away tears as Kemi Badenoch told the Commons she looked “absolutely miserable”. Labour minister Ellie Reeves then appeared to be holding her sister’s hand as she left the chamber on Wednesday.It has been claimed by ministerial sources that the tears were a result of an argument with Speaker Sir Lindsay Hoyle prior to PMQs for which they said he has since apologised. The Speaker’s office has declined to comment.Her tears came as the prime minister came under attack in a fiery PMQs over his failure to deliver £5bn of welfare cuts, which were a crucial part of the spending review.Sir Keir refused to guarantee Ms Reeves’ future as chancellor when pressed by Ms Badenoch amid growing speculation over a reshuffle to regain his authority.He also failed to rule out tax rises.Comment: It’s hard to see how Rachel Reeves can surviveUntil lunchtime today, it appeared that humiliated Keir Starmer was the biggest political victim of the government’s welfare U-turn. The extraordinary and piteous sight of chancellor Rachel Reeves in tears in the Commons has changed that.She rightly deserves sympathy for the huge personal toll the welfare revolt has clearly had on her. From the moment Labour was elected, Reeves has staked everything on balancing the nation’s books and filling the Conservatives’ “£22bn black hole”.However, the welfare rebellion by her party has blown a further £5bn hole in her plans, making it impossible for her to keep her pledge of no further tax rises. The fact that more than 100 of her MPs were prepared, in effect, to treat her and her strategy with contempt, forcing her to rip it up, was a big enough blow to her self-esteem.Simon Walters writes:It’s hard to see how Rachel Reeves can surviveThe chancellor deserves our sympathy, writes Simon Walters, but resignation may now be inevitable. And her boss’s credibility has also taken a huge hit – the prime minister remains in office but not in powerTara Cobham2 July 2025 15:53SNP Westminster leader expresses support for Reeves after chancellor cries in PMQsThe SNP Westminster leader has expressed support for Rachel Reeves after the chancellor cried during PMQs.In a post on X, Stephen Flynn MP said: “Like almost all MPs I don’t know why the Chancellor was upset in the Chamber today, but I do hope she is okay and back to her duties this afternoon.“Seeing another person in distress is always very difficult, and we are wishing her well.”Tara Cobham2 July 2025 15:36Starmer ‘absolutely’ has confidence in his own judgement, Downing St saysDowning Street said Sir Keir Starmer “absolutely” has confidence in his own judgment.Asked the question by reporters, the prime minister’s press secretary said: “Yes absolutely. This is a prime minister who in the opposition picked the Labour Party off the floor, turned it around and secured the mandate that we received last year.“This is a prime minister who… is taking a phased approach to government. The first phase is fixing the foundations, including the £22 billion black hole the Tories left, invested record amounts in the NHS and delivered double the amount of appointments that we committed to in the election, frozen fuel duty… and now we’re delivering fairness and security through our plan for change.”Tara Cobham2 July 2025 15:30How Starmer went from defiant to defeated as he scrambled to get his bill over the lineTimms is a veteran politician of 31 years in parliament, stoic and understated in nature, thoughtful and careful in speech. He was in many ways the least likely character on the stage to deliver a moment of such theatre.The Independent’s political editor David Maddox reports:2 July 2025 15:27Sources reveal reason for Rachel Reeves argument with the SpeakerThe Independent’s political editor David Maddox reports:Rachel Reeves’ tears all the way through PMQs have been the talking point of a day where the government appears to be spiralling out of control after the welfare reform debacle.It emerged that the chancellor had an altercation with Speaker Sir Lindsay Hoyle on her way into the chamber.Now it is being suggested that the reason for the Speaker’s ire was that Ms Reeves and her team slowed down Treasury questions on Tuesday to try to lessen the scrutiny.Neither side has formally commented on the supposed argument.Tara Cobham2 July 2025 15:16Comment | Watching Rachel Reeves crying in the Commons was quietly devastatingOur Voices Editor Victoria Richards writes: Imagine being Rachel Reeves, for a moment. You are sitting in the House of Commons, surrounded by your peers; there to help defend your government’s decisions on welfare reforms after nights of heavy in-fighting and rebellion.The weight of being the first female chancellor in British history lies heavy on your shoulders; your already watered-down plans to make savings with welfare cuts, even more so. I must not crumble, you might tell yourself.Read the full comment piece below: Jabed Ahmed2 July 2025 15:11Jenrick posts brutal social media video saying Reeves’ ‘career is dead’Robert Jenrick has released a brutal social media video saying Rachel Reeves’s “career is dead”, just two hours after the chancellor was seen crying on the Commons frontbenches.Speaking as he tore up a copy of the government’s welfare reform bill, following last night’s chaotic U-turn, the shadow justice secretary said: “Rachel Reeves’ benefits bill is dead and so is her career.”He added: “She’s been humiliated by her own backbenches and forced into her most embarrassing U-turn yet. By her own metric, she’s crashed the economy, she’s lost the confidence of the markets, and now it seems she’s lost the confidence of the prime minister too. It’s time for Reeves to go.”Millie Cooke2 July 2025 14:59Live: MPs vote on banning Palestine Action activist group under anti-terror laws[embedded content]Jabed Ahmed2 July 2025 14:43UK bonds suffer biggest selloff since October 2022 as worries build over ReevesUK government bond prices fell by the most since October 2022 and the pound has tumbled after Rachel Reeves was seen in tears during PMQs.The chancellor has repeatedly emphasised her commitment to fiscal rules, limiting the amount Britain will borrow, and, analysts said, the market moves reflected fears that she would be replaced, creating even more uncertainty.The yield on the 10-year government bond, or gilt, rose as much 22 basis points on the day at one point, to 4.681%, as investors ditched UK debt.That would be the largest one-day jump in the British benchmark yield since October 2022, in the aftermath of Liz Truss’ chaotic fiscal announcement that cost her premiership.The selloff hit the entire gilt curve. Thirty-year yields rose nearly 22 basis points, and 2-year yields rose 11 bps.Sterling dropped by more than 1% against the dollar, set for its largest one-day decline since mid-June and also weakened sharply against the Euro. Jabed Ahmed2 July 2025 14:42No10 says Starmer in constant engagement with MPsDowning Street insisted there was “constant engagement” between the Prime Minister and Labour MPs, amid calls for a reset in relations with backbenchers.The Prime Minister’s press secretary said: “There is constant engagement with the PLP (Parliamentary Labour Party).“The Prime Minister meets regularly with the Parliamentary Labour Party.”She added: “He meets regularly with the parliamentary committee, which represents backbench MPs. That engagement has been consistent and will continue to happen.”Jabed Ahmed2 July 2025 14:32 More