Where does the welfare bill climbdown leave UK public finances?
Keir Starmer managed to avert a parliamentary defeat over his main welfare bill on Tuesday, but only by removing a central element.So where does the government’s latest climbdown leave the public finances?Cuts to the personal independence payment (Pip) announced at Rachel Reeves’s spring statement in March were meant to save the Treasury £5bn a year.Ministers’ changes to the bill last week to try to avoid a Commons defeat – reversing some cuts to universal credit and applying the stricter Pip eligibility rules only to new claimants – had already reduced that saving to about £2bn.After stripping the Pip changes out of the bill completely on Tuesday, the Resolution Foundation estimates there will be no savings in five years’ time – leaving a £5bn hole in the chancellor’s plans.Reeves also faces a £1.
25bn cost from her decision to restore the winter fuel allowance to most pensioners – having stripped it away last year,Between them, these U-turns will swallow most of the £10bn headroom the chancellor created for herself against her fiscal rules at her spring statement,We won’t know until the Office for Budget Responsibility (OBR) publishes its latest forecasts in the autumn, but it certainly looks more likely after the latest reversal,There were already fears in the Treasury that the “summer stocktake” of forecasts the OBR is now undertaking would result in a downgrade to growth expectations – setting Reeves on course to break her fiscal rules,In an evaluation of past forecasts, published on Tuesday, the OBR noted that it had tended to be too optimistic over the course of a five-year forecast – the period over which it assesses the government’s compliance with the rules.
There is a widely held view among City experts and thinktanks that the OBR could decide to revise down its growth forecasts – which could have a significantly bigger impact on the public finances than the welfare U-turns.Reeves’s team caution that there are many factors at play – including the possibility of more upbeat economic news between now and the autumn.An increase in the government’s borrowing costs would work in the other direction, however.The yield – effectively the interest rate – on government bonds rose sharply on Wednesday, amid speculation over the chancellor’s future.Reeves could rewrite her rules, or scrap them altogether; but she has made clear that she believes a looser approach would not be tolerated by the bond markets – which determine the interest rates the government must pay on its debt.
If she is sticking to the framework, in theory the chancellor could opt to cut spending in future years – the approach she took at the spring statement, and which led to the hasty announcement of the Pip cuts,That looks unlikely, given that future budgets for departments were only set in last month’s spending review, and much of the rest of public spending is on the benefits that have proven so politically difficult to touch,Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionThat leaves tax rises, which many independent analysts now believe look increasingly likely,Asked on Wednesday morning whether he could rule out tax rises, the Cabinet Office minister Pat McFadden told BBC Breakfast he was “not going to speculate” on the budget, but added: “We will keep to the tax promises that we made in our manifesto,”The Treasury may also be reluctant to sign up to further spending measures, such as the £3.
4bn cost of lifting the two-child limit on universal credit, which some Labour backbenchers have been pushing hard for.Labour has ruled out increasing the main revenue raisers of income tax, VAT, and employee national insurance.Reeves may also be reluctant to pile more costs on businesses, after they bore the brunt of the £40bn in tax rises she imposed at last year’s budget.Given these constraints, many analysts believe a plausible option would be to extend the freeze on income tax and national insurances thresholds imposed by Jeremy Hunt for an additional two years – dragging more people into paying the higher rates.The chancellor firmly rejected that plan at last October’s budget, however, and appeared to hint that it would breach the spirit of Labour’s manifesto.
“I have come to the conclusion that extending the threshold freeze would hurt working people.It would take more money out of their payslips,” she said in her budget speech.“I am keeping every single promise on tax that I made in our manifesto.So there will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions of the previous government.”Other possible revenue raisers include cutting tax relief on higher rate pension contributions – a policy regularly raised and rejected by previous chancellors.
Reeves is also likely to be encouraged to think more creatively about tax reform – though the more radical the proposal, the less likely it is that the OBR will accept the Treasury’s estimates of what might be raised.The former chancellor and prime minister Gordon Brown has recommended a £3bn-a-year levy on online gambling companies, to fund the lifting of the two-child limit on benefits, for example, while leftwing Labour MPs are calling for a wealth tax.
US adds 147,000 jobs in June, surpassing expectations amid Trump trade war
The US economy added 147,000 jobs in June, a sign of continuing strength in the labor market amid Donald Trump’s trade war.The number of jobs added surpassed expectations, as economists largely anticipated a drop in openings. Instead, 3,000 more jobs were added in June compared with May, according to new job figures from the Bureau of Labor Statistics (BLS). The unemployment rate actually decreased to 4.1%, down from 4
Reeves’s fearsome challenge: to balance backbenchers and bond markets
It was Bill Clinton’s political adviser James Carville, way back in the 1990s, who said that in another life he would like to “come back as the bond market” – in preference to a president or a pope – because “you can intimidate everybody”.Even Donald Trump, that most wilful of politicians, has been forced to retreat in the face of bond market moves in recent months, ditching the most extreme of his “reciprocal” tariffs after US Treasury yields jumped.And despite the traditional status of US Treasuries (government bonds) as a safe haven for global investors, it is still not clear how well financial markets will be able to swallow the $3.3tn increase in debt coming down the tracks if Trump’s “big beautiful bill” is passed.So when investors dumped gilts (UK government bonds) on Wednesday, as Rachel Reeves wept in the Commons, it was an abrupt reminder that Labour backbenchers were not the only audience the government must placate
AI helps find formula for paint to keep buildings cooler
AI-engineered paint could reduce the sweltering urban heat island effect in cities and cut air-conditioning bills, scientists have claimed, as machine learning accelerates the creation of new materials for everything from electric motors to carbon capture.Materials experts have used artificial intelligence to formulate new coatings that can keep buildings between 5C and 20C cooler than normal paint after exposure to midday sun. They could also be applied to cars, trains, electrical equipment and other objects that will require more cooling in a world that is heating up.Using machine learning, researchers at universities in the US, China, Singapore and Sweden designed new paint formulas tuned to best reflect the sun’s rays and emit heat, according to a peer-reviewed study published in the science journal Nature.It is the latest example of AI being used to leapfrog traditional trial-and-error approaches to scientific advances
Google undercounts its carbon emissions, report finds
In 2021, Google set a lofty goal of achieving net-zero carbon emissions by 2030. Yet in the years since then, the company has moved in the opposite direction as it invests in energy-intensive artificial intelligence. In its latest sustainability report, Google said its carbon emissions had increased 51% between 2019 and 2024.New research aims to debunk even that enormous figure and provide context to Google’s sustainability reports, painting a bleaker picture. A report authored by non-profit advocacy group Kairos Fellowship found that, between 2019 and 2024, Google’s carbon emissions actually went up by 65%
India bat England into submission as Stokes’ threadbare attack drags its feet | Andy Bull
The sun shone, the wind blew, the grass grew, and India batted. And batted. And batted. They batted on so long that summer’s roses had budded, bloomed and withered again before they were finished. Excited little kids who had taken seats in the family stand first thing in the morning left it as jaded pensioners in the evening
Jack Draper knocked out of Wimbledon by inspired comeback kid Marin Cilic
The question that sprang into Jack Draper’s mind after this chastening defeat was simple: how did Andy Murray do it? Draper, the new hope of British men’s tennis, had come into these championships with expectations that he would leave his mark. Instead he was taught a grand slam lesson by the veteran Marin Cilic and leaves Wimbledon with fresh lessons to take on board in his burgeoning career.There has been distinct excitement at Draper’s prospects in SW19 this summer after his heady ascent up the rankings and victory at Indian Wells in the spring. That this was only his fourth Wimbledon appearance and that none of his previous outings had gone beyond the second round was not given much weight. But perhaps a lack of experience told here, at least in how Draper managed the match, while the 36-year-old Cilic, a Wimbledon finalist in 2017, revelled in his own on-court Indian summer
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