Asked about the mounting Labour benefits revolt on a visit to Scotland this morning, Rachel Reeves said it was ‘absolutely clear that the current system is not working for anyone’

‘So, we do need to get a grip. We need to spend more on national defence, but we need to reform our public services, and we need to reform our broken welfare system.’

Ms Reeves is struggling to fill an estimated £20billion black hole in the government’s finances, after slumping growth and rising debt interest costs wreaked havoc with Budget plans.

The problems were underlined today as official figures showed the economy unexpectedly shrinking by 0.1 per cent in January.

That does not factor in the massive national insurance hike due next month, and the impact of Donald Trump’s trade war.

Ms Reeves has made clear she does not want to increase taxes, leaving the government scrambling for ways to reduce expenditure.

Unprotected departments have been asked to model eye-watering 11 per cent cuts as part of the Spending Review.

But the benefits announcement was delayed from this week to next – likely Tuesday – as furious Labour MPs were called into Downing Street in a bid to quell opposition.

Speaking on a visit to Hull yesterday Sir Keir reiterated the ‘moral’ argument for reforming welfare.

‘The welfare system as it’s set up, it can’t be defended on economic terms or moral terms,’ he said.

‘Economically, the cost is going through the roof. So if we don’t do anything, the cost of welfare is going to go to £70billion per year. That’s a third of the cost of the NHS.

‘That’s more than the Home Office and our prisons combined. So we’re making choices here.’

He went on: ‘We’ve set up a system that basically says, ‘if you try the journey from where you are into work and anything goes wrong, you’ll probably end up in a worse position when you started’.

‘And so understandably, many people say, ‘well, I’m a bit scared about making that journey’. Therefore we’re baking in too many people not being able to get into work.’

He denied that the proposals together with civil service job cuts amounted to a return to the ‘austerity’ of the Coalition government.

‘There is no return to austerity. I said that to you before the election, and we’re not going to austerity,’ the PM said.

The PM allowed the meeting to run longer than scheduled as concerns about curbs to welfare and departmental spending were so intense,

However, ex-shadow chancellor John McDonnell, who sits as an independent MP after rebelling against the Labour whip, told Times Radio: ‘There are a number of people and I can understand their concerns completely to say, actually, we’re not operating like a Labour government.

‘And that by introducing cuts in welfare, some people are saying, well, we’re going back to austerity. They say it’s almost like George Osborne all over again.’

His predecessor Ed Balls added: ‘Cutting the benefits of the most vulnerable in our society who can’t work to pay for that – is not going to work. And it’s not a Labour thing to do… It’s not what they’re for.’