Will Major Welfare Reform Happen In 2026?
5 min read
The Labour backbench rebellion that forced Keir Starmer to abandon welfare reform was one of the most bruising moments for the Prime Minister in 2025. He is determined to try again next year. Will he succeed?
Starmer has described the existing benefits system as unsustainable and unfair.
In March, as the PM prepared his first attempt at significantly reducing welfare spending, the government warned that the number of working-age people claiming Personal Independence Payments (PIP) was expected to rise to 4.3m from 2m in 2021, costing over £34bn a year.
This, Starmer said, required action. In July, the government said it would legislate to tighten eligibility for PIP and scale back disability support in Universal Credit — measures that it said would have reduced the welfare bill by £5bn.
What followed was one of the most serious challenges to the Prime Minister's authority since entering Downing Street in July 2024. While the government argued that it had no choice but to get a grip on spiralling welfare spending, many Labour MPs viewed the proposals as punitive and warned that they risked pushing vulnerable people deeper into hardship.
Faced with an extraordinary backbench rebellion, the PM agreed to water down the reforms significantly, rendering the original package dead.
Heading into 2026, Starmer has signalled that he wants to have another go.
His decision in the September cabinet reshuffle to move ally Pat McFadden from the Cabinet Office to the Department for Work and Pensions (DWP) was widely seen as foreshadowing a renewed effort to drive through changes.
Described by one Labour MP as a “headbutting enforcer”, McFadden has made clear he is not “done” scrutinising welfare spending. Another Labour backhencher adds: “McFadden isn't exactly Mr Delicate, he doesn't mind treading on feet and heads to get what he wants.”
One widespread criticism of the government operation earlier this year was that it failed to engage with Labour MPs on the proposed welfare reforms, despite the subject being a sensitive one for large parts of the Parliamentary Labour Party (PLP).
On how McFadden should deal with Labour MPs in the coming months, one backbencher said: “He has got to meet and engage early."
“They rushed into it last time, and I hope they’ve learnt the lessons," said Rachael Maskell, Labour MP for York Central. She was one of 49 Labour backbenchers who voted against the measures even in their heavily revised form.
Ministers were also accused of failing to properly engage with charities, to the fury of influential Labour MPs like Debbie Abrahams, Chair of the Work and Pensions Committee.
Following criticism of its engagement, the government has announced a review to look at whether current disability payments are fit for purpose, and has committed to making no changes to PIP until after the review finishes in Autumn 2026. It is being led by Stephen Timms, the disability minister, who is widely respected in Labour.
Starmer also recently appointed Alan Milburn, a former health minister in Tony Blair’s government, to lead an independent review into the rising number of young people not in education, employment or training, which is set to be published mid-way through next year. According to the DWP, the number of young people claiming Universal Credit has risen by more than 50 per cent over the past five years.
But while engagement is one thing, the substance of additional reforms is another.
There are many Labour MPs who remain deeply concerned by the prospect of vulnerable people losing support and say that they will defy the government again if necessary.
One rebel Labour MP warned that cuts would not be "palatable" for the PLP.
Tribune, the historic soft left caucus revived by dozens of Labour MPs earlier this year, is expected to be vocal on this issue when the government decides to revisit it.
“They [government] want to try and create a narrative in which they are getting other pillars in place to ensure that we’re not just pushing people off a cliff edge and there is going to be a soft landing for them – but no one really believes that,” a Labour MP told PoliticsHome.
Many loyalist Labour MPs are exasperated by what they see as colleagues who are unwilling to accept difficult but necessary choices. One bemoaned to PoliticsHome that meaningful reform to the welfare system will be "impossible" with this cohort of Labour MPs.
While the decision at last month's Budget to lift the two-child benefit cap was welcomed by most of the PLP, some MPs on the right of the party feared that it would be unpopular with the public and expose Labour to rival attacks that it is raising taxes to fund benefits.
Tory leader Kemi Badenoch has sought to make welfare a dividing line with Labour, describing the Budget as "for Benefits Street, paid for by working people".
She has criticised the over-diagnosis of “low-level mental health issues” for making the benefits system unaffordable, and announced a Conservative Party review into which conditions should qualify for benefits. “Quite simply, our sickness benefit system was not designed to handle the age of diagnosis which we now live in,” she said.
What could make a second attempt at welfare reform even harder for Starmer is the precariousness of his starting position, with the PM heading into next year with the question of how much longer he'll last in Downing Street hanging over him.
“[No 10] are going to have to hope that they can navigate this through, but they are in a really weak place”, said one Labour MP.
Another put it more bluntly: “I think discipline is broken. No one thinks Starmer is going to be there after May, so on what authority are they going to make MPs vote for something that’s going to harm their constituents?”
