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(Bloomberg) — Prime Minister Keir Starmer is poised to slash the UK’s ballooning benefits bill next week, setting the scene for a moment of political danger that his own supporters concede will be his toughest domestic test yet amid calls from within the governing Labour Party to raise taxes or borrowing instead.

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The government is due to unveil some £6 billion ($7.8 billion) of welfare savings, the vast majority of which will come from making it harder to claim benefits for physical and mental disabilities, known in the UK as Personal Independence Payments, or PIP. It follows other decisions — controversial within a Labour Party that prides itself in looking after the most vulnerable — to strip most pensioners of winter fuel payments and take an ax to the overseas aid budget.

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The premier’s determination to reduce spending to balance the books risks sparking a rebellion within a party that swept to power last year with a huge majority. The cuts are unpopular even among Starmer’s cabinet, more than half of whom protested at a private meeting on Tuesday, Bloomberg reported Thursday. Deputy Prime Minister Angela Rayner, Energy Secretary Ed Miliband and Justice Secretary Shabana Mahmood were among those with concerns, people familiar with the matter said. 

Several dissenting ministers would rather the government tweak self-imposed budgetary rules to allow more borrowing, or adopt a more balanced approach that includes tax hikes within the constraints of Labour’s manifesto commitments not to raise income tax, national insurance or VAT, according to the people, who requested anonymity discussing internal party wrangling.

“Lower-income households should not bear the brunt of any fiscal consolidation,” said Ruth Curtice, chief executive of the Resolution Foundation, a think tank close to Labour. “With fiscal pressures only likely to intensify, continuing to rule out tax rises will hamper a state whose public services are already creaking under pressure,” she warned, foretelling a debate that party insiders say will dominate conversations before June’s spending review and the budget later this year.

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But Starmer and Chancellor of the Exchequer Rachel Reeves see the ever-expanding welfare bill as unsustainable as they struggle to find more money for defense, the National Health Service and public investment while also meeting their fiscal rules — which Reeves has described as “iron-clad” and “non-negotiable.”

PIP payments are projected to almost double to £41 billion by the end of the decade, within overall spending on incapacity and disability benefits that the Office for Budget Responsibility sees rising to £100 billion from £65 billion last year.

Next week, the prime minister will say Labour inherited from its Conservative predecessors a broken welfare system that failed to incentivize work and threatened Britain’s fiscal stability, according to people familiar with the matter. 

The premier and his aides have been appalled at how handouts spiraled upwards under the Tories, and see both an economic and moral imperative to fix a situation they say means hundreds of thousands of people who could be helped into jobs are languishing at home. 

Some 2.9 million people are out of work due to ill health, 900,000 more than before the Covid pandemic. Half a million more are claiming benefits for mental ill health than before 2020, according to the Institute for Fiscal Studies. Starmer will insist his government must address that tragedy.

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“It is absolutely clear that the current system isn’t working,” Reeves told broadcasters on Friday. “It’s not working for people who need support, it’s not working to get people into work so that more people can fulfill their potential, and it’s not working for the taxpayer.”

Aides argue that swing voters and people in working class areas with views on handouts that are less generous than those of Labour lawmakers will support the move. Officials cited the example of the state giving expensive BMW cars to people claiming for conditions affecting their mobility as evidence the status quo can’t continue.

Downing Street officials believe they’re successfully positioning Starmer in the political center, after receiving private feedback from former Tory politicians who wished they’d acted as Labour is on welfare, defense, planning, deregulation and changes to state bureaucracies like the NHS.

Nevertheless, Starmer’s supporters concede the benefits cuts will be painful and understand the level of internal disquiet. While the government will accompany the retrenchment with a major employment support package, aides said it isn’t possible to significantly reform welfare without a carrot-and-stick approach. Some expressed concern the announcement could be derailed if a particular aspect captures public attention and is viewed as cruel.

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Proposed cuts — especially to government departments at the forthcoming three-year review — are already too much for some in Labour. Changes to PIP would go beyond anything former Tory chancellor George Osborne did during the so-called austerity years, one government figure warned. Even within the Department of Work and Pensions, which is in charge of the policy, there is unhappiness at the plans.

Some ministers are on resignation watch. Last month, development minister Anneliese Dodds quit over the foreign cuts, and officials do not rule out further departures. The welfare announcement had been slated for last week but was delayed as Downing Street sought to calm the dissent. Officials are now scrambling to find a last-minute way to top up benefits for people who’ll never be able to work, the people said.

The relative discipline of the Starmer government will be tested if the benefits cuts require a parliamentary vote, with lawmakers predicting a rebellion of up to 80 Labour Members of Parliament. It’s been noticed that only around 36 MPs signed a coordinated letter in support of the reforms last week. Even among that cohort of ambitious lawmakers loyal to Downing Street, privately some have admitted concerns, a government aide said.

“Cutting the benefits of the most vulnerable in our society, who can’t work, is not going to work,” former Labour shadow chancellor Ed Balls told his Political Currency podcast this week, in a sign of arguments to come. “It’s not a Labour thing to do.”

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