Labour created the welfare state. Now, it's intent on cutting it back

Labour was the party that created the welfare state. Now it is intent on cutting it back.

And in Liz Kendall, the government has found a Labour work and pensions secretary clearly entirely comfortable in going harder on benefit cuts than any of her Conservative predecessors since 2015, according to the Institute of Fiscal Studies.

When I ask her about that, she is unrepentant and unfazed by colleagues' criticisms.

"I am going to be a Labour work and pensions secretary who fixes a broken system," she said, "who says to people who've been written off and denied chances and choices that we believe in them...

"I am cross, because I've seen in my own constituency people written off to a life that is not the life they hoped for themselves or their children or their families.

"I want to fix it. And that's what I'm determined to do."

This, then, is the moral case for reform that she and the prime minister have talked about in recent weeks.

And on Tuesday, Ms Kendall outlined reforms designed to reduce those claiming the main disability, with hundreds of thousands of people expected to lose personal independence payments (PIP) if they suffer from milder mental health conditions and less severe physical difficulties.

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The target is to save £5bn from a disability benefits bill for working-age people set to balloon by over £20bn to £75bn by the end of the decade.

Ask some in Labour and they will privately acknowledge and argue this is but a drop in the ocean, with one insider telling me this week they didn't think the reforms went far enough.

"I don't think people have clocked the size of the numbers going on here," they said. Look at the public finances and you can see why.

While the Labour Party clearly talked about welfare reform in its manifesto, it never signalled it would make these sorts of cuts to the benefits bill. But the environment has changed.

Growth is sluggish, which many businesses - and the opposition - blame on tax rises in the October budget, while the cost of government borrowing is on the rise.

The chancellor now finds herself with a hole in the public finances to the tune of £9.9bn, which she has to fill if she is to fulfil her self-imposed fiscal rule that day-to-day government spending must be funded through tax receipts - not borrowing - by 2029/30.

She was crystal clear to me in our conversation for the Sky News' Electoral Dysfunction podcast that she was not going to loosen her fiscal rules - although many MPs think she should.

She was also clear she wasn't coming back with more tax rises. Instead it will be spending cuts, and welfare is the first wave, with a spending squeeze across Whitehall departments expected in the Spring Statement.

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Sir Keir Starmer told me last week that his plans to reform the state, with thousands of job cuts already signalled in NHS England and benefit cuts, that there will be "no return to austerity".

His hope is that reform - be it through technology or efficiency savings - can mean public services are maintained even if rates of spending growth are reduced.

It may not feel like that for those who are at the sharp end of the £5bn of benefit cuts coming down the track.

Liz Kendall would not rule out further cuts to the welfare bill further down the line in an interview with Sky News on Tuesday, which will make many in her party nervous with some MPs and ministers concerned about the motivations of the government in its overhaul of the benefits system.

"The intellectual question hasn't been answered here: is this about principled reform or is it a cost-saving exercise?," one cabinet source told me on Tuesday.

"There are some concerns this doesn't fix the issues around welfare but rather is about finding quick savings."

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There will be unease among MPs, unions and charities as the Labour Party moves onto traditional Tory territory with welfare cuts as a strapped Labour government looks for savings. It is uncomfortable terrain.

"I have to say these are Conservative policies that Labour MPs will be voting for," the former Tory work and pensions secretary Baroness Coffey told me on Tuesday.

"Overall, I think a lot of Labour MPs will be very unhappy about what they heard today [but] I think the Conservatives will support a considerable amount of that because, as I say, a lot of this was Conservative policy. We didn't have time to do the legislation, unfortunately, towards the end of the parliament."

Sir Keir Starmer has the majority to bring in these changes, but cutting the benefits of those living with disabilities will be controversial in the Labour movement even if the measures are more popular with the wider public.

As one veteran Labour MP put it to me: "This is one of these issues that come back to bite later."

The devil will be in the detail, and for now, hundreds of thousands of benefits recipients don't know if they will still be eligible for the main disability benefit - personal independence payments - in the coming months, with the government yet to outline where the £5bn of savings will be found.

It is an anxious time for those who rely on the welfare state. How long a shadow these reforms will cast over Sir Keir's domestic agenda is hard to tell - but these reforms look set to become his hardest sell.

(c) Sky News 2025: Labour created the welfare state. Now, it's intent on cutting it back