Labour government faces backlash over controversial welfare reform proposal

Department of Research, Studies and International News 28-04-2025

Prime Minister Keir Starmer is encountering significant resistance from within his own party over a proposed welfare reform bill that would empower authorities to withdraw funds directly from the bank accounts of individuals suspected of benefit fraud. The same bill could also lead to the suspension of driving licences for those who repeatedly fail to repay overpaid benefits.

The legislation, which mirrors a previous Conservative initiative, is part of a wider effort to recoup nearly £10 billion in welfare overpayments identified during the 2023–2024 fiscal year. These overpayments, attributed to both fraudulent claims and administrative errors, have prompted the government to pursue more aggressive recovery methods.

Under the proposed “fraud, error, and debt recovery” bill, the Department for Work and Pensions (DWP) would gain access to claimant bank account data, allowing officials to determine whether individuals possess the financial means to repay misallocated benefits. If so, the government would be authorized to extract funds directly from their accounts, provided the individual is not already receiving benefits or employed under PAYE.

Work and Pensions Secretary Liz Kendall has defended the policy, arguing that it is essential to fix a “broken welfare system.” However, backlash has grown among Labour backbenchers, with dissent centered around the potentially intrusive nature of the measures.

Neil Duncan-Jordan, Labour MP for Poole, has taken a prominent stance against the bill. He has tabled a series of amendments aimed at narrowing the scope of the legislation. Chief among his concerns is that the current form of the bill could unjustly subject vulnerable people, such as disabled individuals, carers, and pensioners, to unnecessary scrutiny.

Duncan-Jordan emphasized that only those with clear indications of fraudulent activity should be investigated, and not individuals caught up in bureaucratic mistakes. He described the proposed powers as punitive and likened the suspension of driving licences to a “poverty penalty.” He also warned that the use of algorithms to scan millions of bank accounts for suspicious activity could create a new “Horizon-style” scandal, referencing the widely criticized Post Office IT fiasco that led to numerous false fraud allegations.

In an article for The Guardian, Duncan-Jordan accused the Labour leadership of reviving a Conservative approach that treats benefit recipients with undue suspicion. He warned that the policy could lead to widespread surveillance, eroding public trust and burdening innocent claimants with lengthy appeals processes to prove their eligibility.

The financial sector has also voiced concern, particularly over the pressure the policy could place on banks to surrender customer data. Critics argue that this may conflict with financial institutions’ regulatory duties to protect vulnerable clients.

Meanwhile, the government maintains that the measures, including “direct deduction orders,” could yield savings of up to £500 million annually for taxpayers once fully implemented.

As the legislation continues to progress through Parliament, mounting internal opposition suggests that Starmer’s leadership may face a critical test over how far the government should go in its efforts to combat welfare fraud without compromising civil liberties.