Work and Pensions Secretary Liz Kendall last week set out sweeping welfare reforms in the Commons that she said were expected to save more than £5bn in 2029-30.
But the Office for Budget Responsibility (OBR) rejected the Treasury’s projected £5bn welfare savings, leaving the Chancellor with a £1.6bn hole.
The universal credit incapacity benefit for new claimants – already halved by the Government – will now be frozen until 2030 rather than increased in line with inflation.
Rachel Reeves has ruled out tax rises in her Spring Statement (Photo: Jason Alden/Bloomberg via Getty Images)
Currently, a single person on universal credit deemed fit to work receives £311.68 if they are under 25 or £393.45 a month if they are older than 25.
Current claimants will see this top-up payment frozen at £97 a week until 2029-30. For new claims, this rate will be reduced to £50 a week.
The work capability assessment – a test which determines someone’s eligibility for the health element of universal credit – will be scrapped by 2028.
Analysis by the Institute for Fiscal Studies suggests about 600,000 people who currently qualify for the health element of universal credit could lose £2,400 a year as a result.
Personal independence payments (PIP)
Changes to PIP are expected to account for the largest proportion of savings, with more than 3.6 million people who have a long-term physical or mental health condition receiving the benefit.
The Resolution Foundation think-tank has estimated the Government’s reforms could see between 800,000 and 1.2 million people in England and Wales losing support of between £4,200 and £6,300 per year by the end of the decade.
Claimants in England and Wales entitled to personal independence payments (Photo: PA Graphics)Under current rules, claimants are given the standard rate of PIP if they score between eight and 11 points across all categories on either component, while scores over 12 receive the enhanced rate.
Over a third of PIP claimants are diagnosed with mental health disorders, with Health Secretary Wes Streeting claiming that there may be an “overdiagnosis” problem.
Labour claimed the process to qualify is being tightened to focus on “those with higher needs”.
According to the OBR, the benefits reforms will save only £3.4bn , leaving Reeves with an unexpected £1.6bn shortfall.
Other public spending cuts to bring the total savings to £5bn will be announced at the Spending Review in June, it is reported.
Civil Service jobs
Reeves said plans to slash government costs would see around 10,000 jobs axed, adding she was confident cuts would be to “back office jobs” to free up resources for “front line” services.
But unions have warned up to 50,000 people could lose their jobs and vital services could deteriorate.
Why welfare is being reformed
When elected, the Labour Government said it would reduce the welfare bill by more than £5bn by 2030 – matching Tory savings from the previous administration – but would bring forward new reforms to make the savings.
The Government has said the measures will be fair and sustainable, whilst protecting vulnerable disabled people who will never be able to work, and are designed to tackle the ballooning welfare bill.
Spending on PIP – which helps disabled people with day-to-day support – is projected to almost double to £34bn by 2029-30.
According to the Institute for Fiscal Studies, spending on working-age health-related benefits overall – which includes out of work incapacity benefits – rose from £36bn in 2019-20 to £48bn in 2023-24 – and is projected to rise to even further, to more than £60bn, by 2029.
Meanwhile ministers are under pressure to tackle an increase in the number of economically inactive people, with a recent spike in people not currently working or in education due to a health condition.
One in 10 people of working age are claiming some kind of sickness or disability welfare, according to the government, and almost three million people are out of work due to a health condition.
By Chloe Chaplain
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