Rachel Reeves will launch a fresh crackdown on benefit fraud at the same time as lifting the two-child limit for universal credit at a cost of £3bn, as ministers seek to head off criticism over rising welfare spending in the budget.
The chancellor has made the decision to scrap the two-child limit in full, a move that will be welcomed by Labour MPs who have long highlighted its effect on increasing child poverty.
However, the Conservatives and Reform immediately sought to portray the chancellor as presiding over a rising welfare bill at the same time as bringing in billions of pounds in tax rises for people who are working.
“On Wednesday, Starmer and Reeves are going to increase your taxes to fund more welfare,” said Kemi Badenoch, the Conservative party leader.
The Liberal Democrats, meanwhile, warned that the plan to freeze tax thresholds would affect 9 million earners by 2030 by dragging them into higher tax bands, and said ordinary people were being “milked for their hard-earned cash”.
At the same time, Reeves is coming under attack from the left, with the Green party leader, Zack Polanski, and the Unite general secretary, Sharon Graham, pressing her to go further with a more substantial wealth tax. Graham said neither Reeves not Keir Starmer should stay in post if the budget was not Labour enough, by hitting either working people or those who are sick and cannot work rather than the richest in society.
As she seeks to head off criticism, Reeves will say she plans to bring in an extra £1.2bn in savings by identifying incorrect universal credit payments up to 2031.
A Treasury source said: “We will never tolerate fraud, error or waste in the welfare system – every pound of taxpayers’ money should be spent with the same care with which working people spend their own money.
“That’s why the chancellor is doubling down on this next week – extending targeted case reviews to save taxpayers billions and ensure help goes to those who genuinely need it, and safeguard taxpayers’ money so it can be invested in the public services we all deserve.”
The government is also freezing rail fares and prescription fees, as well as moving to take some levies off electricity bills, at the same time as bringing in billions in tax rises.
Some of the tax rises Reeves is likely to opt for include:
Freezing income tax thresholds for an extra two years to 2030, bringing more people into higher tax bands as wages rise.
Making salary sacrifice schemes less generous, including those for pension contributions.
A pay-per-mile scheme on electric cars to help fill the tax gap from petrol duty as more people opt for green vehicles.
Bringing in higher tax on the most expensive properties, including a surcharge on the highest-value houses. The surcharge will reportedly be targeted at homes worth more than £2m, after worries that a lower £1.5m threshold would hit too many in the south-east.
Whitehall sources said the chancellor was unlikely to attempt further big savings on the welfare bill in the budget, after scaling back cuts to disability benefits in the face of a huge Labour revolt earlier this year.
Reeves has explored the possibility of cuts to the Motability scheme, which allows claimants to use their personal independence payment towards new cars, but disability groups have warned of severe consequences if she goes ahead with the scale of changes that have been floated.
Reeves signalled in an article for the Sunday Times this weekend that she was still committed to “reform” of the welfare system. However, this is not likely to take place until after recommendations from the Labour minister Stephen Timms’s review of disability benefits, and the former cabinet minister Alan Milburn’s review of young people not in employment, both due later next year.
Milburn said this weekend there should be “no no-go areas” when it came to reform of the benefits system, and he has previously said the UK cannot afford to back off from changes to welfare.
Reeves said her budget, which must fill a £20bn fiscal hole, would focus on helping people with the cost of living and would target inflation.
The Treasury said the budget would confirm a rise in state pensions worth more than £550 a year, an extra £120 compared with the amount they would have increased by if they had been uprated by inflation, because of Labour’s commitment to the triple lock. The government is seeking to rebuild trust with older voters after infuriating many by removing the winter fuel allowance and then making a partial U-turn.
Reeves said: “Whether it’s our commitment to the triple lock or to rebuilding our NHS to cut waiting lists, we’re supporting pensioners to give them the security in retirement they deserve.”
The chancellor had spoken out in the run-up to the budget, saying she is “sick of people mansplaining how to be chancellor” after weeks of criticism from the right and left.
Starmer defended his chancellor, saying women in public life faced more abuse than men. The prime minister said he was proud to have appointed Britain’s first ever female chancellor, adding that she and other women in politics and the media get attacked more frequently than their male colleagues.
“I’m really proud to have the first female chancellor ever. I’m really proud that we’ve got a female chancellor who’s doing a really good job,” he said. “I strongly believe that women in public life get much more criticism and abuse than men. That is in politics, but it’s also across a number of other areas – I’d also say the media, frankly – and I think we need to acknowledge that.”
