Burnham Vows to Cut Welfare Bill ‘As Soon As We Possibly Can’ as Healey Defends Budget After OBR Warning

Prime Minister Andy Burnham has insisted the government is working “flat out” to cut Britain’s welfare bill “as soon as we possibly can”, a day after Chancellor John Healey was forced to defend his first Budget against warnings from the official forecaster that the cost of benefits is climbing towards levels the state can no longer comfortably carry.

Speaking to reporters during a visit to Derby on Thursday, Mr Burnham said bringing the bill down was now the government’s biggest domestic priority after the Budget, but he refused to say when the bill would actually start to fall. “We want to get the welfare bill down as quickly as possible, and we’re working flat out to that end,” he said. “We just want to get stuck into supporting people to help people off benefits and into work. There’s no delay there. We want that to happen as quickly as possible.”

The prime minister’s intervention followed a difficult morning for the Chancellor, who was repeatedly pressed by broadcasters about the rising cost of welfare after the Office for Budget Responsibility (OBR) warned that spending on sickness and disability benefits alone could reach £100 billion a year before the end of the decade, according to the BBC.

Asked on the BBC’s Today programme whether the benefits bill would be cut before the next general election, which must be held by August 2029, Mr Healey replied: “There will be a reduction in the benefits bill, we’ll do that in a Labour way and we’ll do that because it is simply not good for Britain or progressive to have a bigger and bigger benefits bill.”

Within hours, however, Treasury officials were pushing back against the interpretation that the Chancellor had promised a cut before polling day, and Mr Healey himself rowed back the commitment in later interviews. He told Channel 4 that it was “not correct to say that we’re going to bring this welfare bill down in this Parliament because we’ve not set a timetable for that”, adding that he had set out a timetable for reforms, but not for the savings they might produce. Downing Street later said the government was “not setting an arbitrary target or timetable”.

On LBC Radio, Mr Healey sought to draw a line between reform and retrenchment, saying welfare reform would not amount to “crude benefit cuts”, which he described as “a pressure too far” while people were suffering with the cost of living. “We have to bring the benefits bill down. You don’t do that by crude cuts,” he told the BBC, according to Reuters.

The row has exposed the central tension at the heart of Mr Healey’s first Budget, delivered to the House of Commons on Wednesday 28 October: a package that offered households immediate help with energy bills, paid for in part by higher taxes on banks, savers and landlords, while leaving the biggest long-term pressure on the public finances — the welfare bill — largely untouched until two major reviews report next month.

The numbers behind the row

The scale of the challenge is stark. Welfare spending is forecast to rise by £19 billion this year to £353 billion, according to the OBR, and will cost more than 11 per cent of the country’s entire economic output this year, Reuters reported. The forecaster has warned that sickness and disability benefits could cost £100 billion a year before the end of the decade if current trends continue.

Those figures explain why the Chancellor’s words on Thursday morning were seized upon so quickly. For a government that has staked its credibility on fiscal discipline, a welfare bill rising by tens of billions of pounds a year sits uneasily alongside promises to bring borrowing down and to keep the public finances on a sustainable path. Yet for a Labour government, the politics of cutting support for sick and disabled people are treacherous — as the party discovered only months ago.

In June, the government of Mr Burnham’s predecessor, Sir Keir Starmer, attempted a significant tightening of the welfare system, including restricting eligibility for some health-related benefits. The plan collapsed in the face of a mass revolt by Labour MPs and an embarrassing climbdown, according to the BBC. That episode hangs over every discussion of welfare reform in this government: ministers know that backbenchers who rebelled once may rebel again, and that the voters who put Labour in office did not vote for benefit cuts.

It is against that background that the government has commissioned two reviews, both due to report in November. Former minister Alan Milburn is examining the circumstances of young people who are not in education, employment or training, while Labour minister Sir Stephen Timms is co-chairing a review of disability benefits. Mr Burnham described the Milburn report as the “big next priority” after the Budget, and his official spokesman said more details of the government’s plans would follow the publication of both reviews.

“We’re working hard to cut the welfare bill as soon as we possibly can. But we’re doing it in a way that supports people into work,” Mr Burnham said in Derby. “If we just went and made crude cuts, in the end, that leaves people in crisis, and you spend more public money somewhere else, so it’s about getting people into sustainable employment.”

What the Budget actually announced

Mr Healey, who took over as Chancellor from Rachel Reeves, the first woman to hold the post, described his first Budget as one offering households “breathing space now [and] hope for the future” amid the rising cost of living. The backdrop was forbidding: conflict in the Middle East has pushed up oil and gas prices, interest rates have risen, and the OBR now expects inflation to average 3.4 per cent next year, against 2 per cent in its March forecast.

The centrepiece of the package was help with energy bills. Around 20 million households in council tax bands A to D in England will receive a one-off £100 payment directly into their bank accounts from January 2027, and gas standing charges — the fixed daily fee households pay simply to be connected — are to be scrapped, with the regulator Ofgem asked to abolish them by the end of 2027. The VAT cut on electricity and the 5p cut in fuel duty were both extended to July 2027.

For workers, the National Living Wage for those aged 21 and over will rise by 3.9 per cent to £13.21 an hour from April 2027, up from £12.71, while the rate for 18 to 20-year-olds rises to £11.27 an hour. The full new State Pension is set to rise by 3.9 per cent to just over £13,000 a year, and a new Pension Tax Allowance will ensure pensioners whose only income is the State Pension are not dragged into paying income tax on it.

Small earners also gained. The Trading Allowance — the amount people can earn from a side business before having to declare it to HM Revenue and Customs — will triple from £1,000 to £3,000 a year from April 2027, a change that will benefit people selling on online marketplaces, freelancing at weekends or running small craft businesses. Paid parental leave is being extended to self-employed parents, including self-employed fathers, for the first time.

For unpaid carers, the Chancellor confirmed that the controversial Carer’s Allowance “cliff-edge” — under which carers lost their entire benefit if their earnings exceeded the threshold by even a penny — will be scrapped and replaced with a tapered model, under which support falls by £1 for every additional pound earned. The change, due for full implementation by 2030–31, is expected to give flexibility to 48,000 carers in England and Wales. A £500 million Fair Pay Agreement for adult social care workers, taking effect from April 2028, was also announced.

But the help was paid for. The tax on banks was raised, the rates of tax on savings and rental income will rise by two percentage points from April 2027 — to 24, 44 and 49 per cent for basic, higher and additional-rate taxpayers — and income tax thresholds will remain frozen until 2031, leaving the personal allowance locked at £12,570 and the higher-rate threshold at £50,270. The planned cut to the Cash ISA allowance, which would have reduced it from £20,000 to £12,000 for under-65s, was scrapped, so the allowance stays at £20,000. The lifetime limit on Business Asset Disposal Relief will be halved from £1 million to £500,000.

The bank tax leak

The Budget was also overshadowed by questions about a leak of market-sensitive information. Dame Meg Hillier, chair of Parliament’s Treasury Committee, wrote to HM Treasury and the Financial Conduct Authority on Wednesday after Bloomberg reported, almost two hours before Mr Healey rose to speak, that the bank surcharge would be set below the widely anticipated 8 per cent rate and that any increase would be temporary. Bank shares rose on the report.

In letters to the Treasury’s permanent secretary, James Bowler, and the FCA’s chief executive, Nikhil Rathi, Dame Meg said the episode “appears to have been more than idle speculation, and it had implications for relevant securities”. She asked for confirmation that banks, or their representatives or trade bodies, had not been told of the changes in outline or in detail before the Budget was published, and welcomed co-operation between the Treasury and the FCA in establishing how the leak occurred and who was responsible.

As announced, banks will pay an extra three percentage points on the corporation tax surcharge, taking it from 3 per cent to 6 per cent on top of the standard 25 per cent corporation tax rate, for 15 months from January 2027. The measure is expected to raise an extra £1.5 billion, according to the OBR. The TUC had called for the surcharge to rise to at least 8 per cent. The banking sector paid £39.1 billion in tax in the 2025–26 tax year, 8.5 per cent more than the previous year, according to HMRC figures. A Treasury spokesperson said: “We do not comment on budget speculation.”

Reaction: opposition and markets

Conservative leader Kemi Badenoch responded to the Budget by saying the country was “overspent, overborrowed, overtaxed, and drowning in an out-of-control welfare system”. Her attack underlined the political bind the government is in: the opposition accuses it of spending too much, while its own backbenchers fear it will cut too much.

The financial markets, by contrast, took the Budget largely in their stride. Gilts ended Wednesday’s trading session little changed, according to Reuters, a contrast with the leaks, U-turns and jitters for bond investors that marked the run-up to the previous Budget a year ago. Former Bank of England chief economist Andy Haldane, who has previously advised Mr Burnham, said that if the government could produce a credible plan showing “greater restraint” on the benefits bill, it would “play spectacularly well” with the markets. “If the government could get that through I think it would come with a huge bonus,” he told the BBC’s Political Thinking podcast.

That market reaction matters more than it might appear. A government that has promised fiscal discipline cannot afford a repeat of the bond market turmoil that has undone British chancellors in the past. Mr Healey’s calm reception in the markets was, in that sense, the Budget’s first success — but it was bought, in part, by leaving the hardest decisions for another day.

Analysis: Why It Matters

The timetable trap

The most revealing moment of the past two days was not anything in the Budget itself, but the speed with which the Chancellor’s apparent promise of a welfare cut before the election was walked back. Mr Healey told the BBC’s flagship morning programme that the bill would fall; by the afternoon, Treasury officials were insisting he had set no timetable, and the Chancellor himself was telling Channel 4 that it would be wrong to say the bill would come down in this Parliament. That sequence tells us something important about where power sits in this debate: the Chancellor can promise reform, but the numbers — and the politics — will not let him promise savings.

There is a good reason for the caution. Welfare spending is not a single lever the government can pull. It is the sum of millions of individual entitlements — pensions, disability support, housing help, payments to people out of work — each governed by its own rules and each with its own constituency. Cutting the total requires either changing the rules, which invites rebellion, or getting large numbers of people into work, which takes time and investment. Mr Healey’s distinction between a timetable for reforms and a timetable for savings is, in that sense, honest: the government can control the first, but only influence the second.

Welfare is the fiscal hinge

Look past the day-to-day political skirmishing and the welfare bill is the hinge on which the government’s entire economic strategy turns. At £353 billion this year — more than 11 per cent of everything the country produces — it is by far the largest single area of public spending, and it is growing faster than the economy. The OBR’s warning that sickness and disability benefits alone could reach £100 billion a year before the end of the decade is the kind of figure that, left unchecked, eventually forces a government to choose between higher taxes, deeper cuts elsewhere, or more borrowing.

That is why the two reviews due in November matter so much. The Milburn review of young people outside education, employment or training — nearly a million of them, of whom just under half are disabled, according to Mr Milburn’s interim findings — and the Timms review of disability benefits will effectively write the next chapter of this government’s welfare policy. If they recommend substantial upfront investment in employment support, as Mr Milburn is expected to do, the government will have to spend money to save money — a hard argument to make when the public finances are already stretched. If they recommend restraint, the government will face the same backbench revolt that sank its plans in June.

The politics of doing it “in a Labour way”

Mr Healey’s phrase — that the bill will be brought down “in a Labour way” — deserves attention, because it is doing a lot of political work. It is a promise to the party’s MPs and supporters that reform will mean help into work rather than punishment for being out of it, and a signal to voters that the government understands the difference between a benefits system that traps people and one that supports them. Mr Burnham’s insistence that crude cuts would leave people in crisis and cost the state more elsewhere is the same argument in plainer language.

Whether that distinction survives contact with the Treasury’s arithmetic is another question. Employment support costs money upfront and pays off slowly, while the OBR’s forecasts show the bill rising now. The government’s bet is that voters will accept a slower path to lower spending if it is visibly fair — and that the markets will accept it too, provided the direction of travel is clear. It is a bet that requires both patience from the public and discipline from the party, two commodities that are rarely abundant at the same time.

What the Budget did — and did not — do for households

Set against the welfare debate, the Budget’s household measures look like a deliberate attempt to buy time and goodwill. The £100 energy payment, the scrapping of gas standing charges, the tripling of the Trading Allowance and the rise in the National Living Wage are all real, tangible help for people feeling the cost of living. The decision to keep the Cash ISA allowance at £20,000 reversed a deeply unpopular plan inherited from the previous chancellor and will have pleased millions of savers.

But the freezes and tax rises that pay for that help — income tax thresholds frozen until 2031, higher taxes on savings and rental income — mean that many households will hand back with one hand much of what they receive with the other. That is the nature of a Budget delivered under tight fiscal constraints: the Chancellor could offer breathing space, as he put it, but not transformation. The question voters will ask over the coming months is whether breathing space is enough.

The leak that should worry ministers more than the row

Finally, the bank tax leak deserves more attention than it has received. A market-sensitive Budget detail reaching Bloomberg almost two hours before the Chancellor spoke — and moving bank shares in the meantime — is a serious failure of the government’s information controls, whatever the Treasury says about not commenting on speculation. Dame Meg Hillier’s demand for answers from both the Treasury and the FCA is the right one, and the fact that the previous Budget was also preceded by leaks suggests a systemic problem rather than a one-off lapse. In a week when the Chancellor asked the country to trust his stewardship of the public finances, the sight of his own Budget leaking to the markets was an unforced embarrassment.

What to Watch Next

1. The Milburn and Timms reviews in November: Their recommendations on young people outside work and on disability benefits will set the terms of the welfare debate for the rest of this Parliament — and test whether the government can reform without repeating June’s climbdown.
2. Whether the bill actually falls: The OBR’s next forecast will show whether welfare spending is bending downwards or still climbing towards the £100 billion-a-year mark for sickness and disability benefits alone.
3. The leak inquiry: Dame Meg Hillier has asked the Treasury and the FCA to establish how the bank surcharge detail reached Bloomberg and whether banks were told in advance. Their replies will show whether anyone is held to account.
4. The £100 energy payments in January 2027: Delivery of the payments to 20 million households will be the first visible test of whether the Budget’s promises reach people’s bank accounts on time.
5. Backbench mood: Labour MPs who rebelled in June are watching the welfare reviews closely. Any sign of a return to eligibility restrictions would reopen the deepest divide in the parliamentary party.

Sources

• Glasgow Times (PA) — Government working flat out to reduce welfare bill, PM says after cost warnings
• Reuters via Global Banking and Finance — UK to cut ‘unsustainable’ welfare costs, Healey says in Budget plan
• UK Parliament, Treasury Committee — Potential Budget leak: FCA and HM Treasury letters published
• Mortgage Solutions — Treasury Committee investigates possible leak of bank surcharge changes before Budget
• Baggette + Co — Autumn Budget 2026: What changed for your finances