Prime Minister Keir Starmer abandoned the central plank of his flagship welfare reform on 1 July, shelving proposed cuts to Personal Independence Payments (PIP) just 90 minutes before a Commons vote. The last-minute retreat, which postpones any change to PIP eligibility until a review reports in 2026, followed a week of mounting opposition from Labour backbenchers. Even with the concession, 49 Labour MPs defied the whips, handing Starmer the largest rebellion of his premiership. The pared-back Universal Credit and PIP Bill nevertheless cleared its second reading by 335 votes to 260, but the episode exposed divisions inside the party and forced further policy revisions only days after an earlier U-turn on winter-fuel payments. The original package was intended to save about £5 billion a year by 2029-30. After the climbdown, the Institute for Fiscal Studies and the Resolution Foundation now expect the reforms to deliver no net savings over the current parliament, leaving a hole of roughly £5-6 billion in the Autumn Budget. Cabinet minister Pat McFadden conceded the changes carry “financial consequences” and declined to rule out tax increases. Tensions spilled into Prime Minister’s Questions on 2 July when Chancellor Rachel Reeves, visibly upset, sat silently while Starmer refused to confirm she would remain in post through the next election. Downing Street later said Reeves retained the prime minister’s “full backing”, but the incident fuelled speculation over her position and the government’s fiscal strategy. Markets reacted to the uncertainty: sterling fell about 0.7% against the dollar and the 30-year gilt yield rose more than 15 basis points after reports of internal turmoil and doubts about the government’s ability to plug the funding gap created by the watered-down bill.