Rachel Reeves 'eyeing hotel tax and disability welfare cuts' in frantic bid to stabilise public finances

12 January 2025, 11:07

Rachel Reeves is said to be planning to slash billions of pounds in disability benefits and introduce a “hotel tax” as she scrambles to fix the country's finances.

The Chancellor is mulling over a series of measures to ease market turbulence erupting in the UK. The pound fell sharply against the dollar this week, while the Government's borrowing rates surged to a 27-year high.

Cutting the welfare bill - specifically Personal independence payments (PIP) for those with disabilities and health conditions - could be high up on the agenda, Treasury sources told The Telegraph.

The bill for the weekly cash handouts is predicted to rise from £22 billion to £35 billion annually by 2029 in a 60% hike.

Government officials are now understood to be considering tightening rules around what proof is required to receive disability payments and examining potential alternatives to PIP.

Read more: Reeves says fiscal rules ‘non-negotiable’ during bid to boost ties with China

Read more: Rachel Reeves says UK has 'no choice' but to engage with China as chancellor kicks off Beijing visit

A Whitehall source shared concerns of the Treasury’s “slash slash slash” agenda with the outlet. Any further spending cuts could be officially announced ahead of a spending review that has already required Government departments to find efficiency savings worth 5% of their budgets.

A Department for Work and Pensions spokesman said: “We don’t comment on speculation. We have been clear that the current benefits system needs reform so it is fairer on the taxpayer and people get the support they need to move into work.

“Building on our Get Britain Working White Paper, we will bring forward proposals for reforming the health and disability benefits system in the Spring.

“This will be part of a proper plan to help disabled people who can work secure employment while ensuring support is provided for those who need it.”

Meanwhile, holidaygoers could also be hit with a ”hotel tax” in Reeves's "frantic efforts" to "stabilise the public finances", according to the Mail. 

Officials are understood to have carried out ”modelling exercises” to assess the impact of introducing a similar “tourist tax” imposed by France. 

It would be paid for by both foreign and British guests and comes after proposals for a new visitor levy in Wales. Visitors would pay the extra fee, which would be collected by accommodation providers.

Britain already has a separate “tourist tax”, which means foreign visitors can no longer claim back VAT on their purchases in a move that has been slammed by British retailers.

Reeves has insisted she has no plans to add to the £40 billion tax rises she announced in the autumn Budget. 

Treasury sources said the Chancellor had also been drawing up contingency plans for emergency spending cuts if a new forecast by the Office for Budget Responsibility in March suggests she would break her own debt rules.

A Treasury spokesman said: “We do not comment on tax speculation outside of fiscal events.”

Reeves insisted during her China visit on Saturday that she won't budge on her “non-negotiable” fiscal rules laid out in the October budget. 

She said: "The fiscal rules laid out in the budget are non-negotiable. Economic stability is the bedrock for economic growth and prosperity."

Reeves has come under fire for her visit to the country amid the economic chaos unfolding back home. 

Investors braced for further increases in borrowing costs as the United States moves to publish crucial employment data.

Cuts in some places and tax hikes in others are part of her "cease anti-growth measures" as she attempts to meet the Government's aim of improving living standards across the country.

Downing Street has insisted it was "still the Chancellor's intention to have one big fiscal statement a year, not two" - as it swatted away suggestions of an emergency "mini-Budget" on March 26.

Cross-bench peer Lord Jim O'Neill told LBC there needs to be a halt to the use of "emotive language" around the current borrowing figures.

"I think it needs to be put into some perspective about what's happening in the world as a whole," he told Ian Dale.

"The pound has not fallen since the budget, other than against the same strengthening dollar that has strengthened against everything else.

"The pound against the euro is the same today as it was on budget day... the pound has hardly moved against the Yen, so the commonality is that everything has weakened against the dollar.”

While Reeves has faced backlash for her China visit, the Chancellor has stressed that closer ties with the economic powerhouse could bring a huge boost to the British economy.

She said on Saturday: “Growing the economy and raising living standards is front and centre of this government’s Plan for Change. That growth must be secure, resilient, and built on stable foundations, including through careful pragmatic cooperation with international partners.

“By finding common ground on trade and investment while being candid about our differences and upholding national security as the first duty of this government, we can build a long-term economic relationship with China that works in the national interest.”

Treasury minister Darren Jones, who was sent by the Government to reply to an urgent question directed at the Chancellor, said the trip is "important" for UK trade and would continue.