When Liz Kendall stepped up to the dispatch box on Wednesday to deliver details of the government’s £5bn cuts to the benefits bill it was a watershed moment for the Labour Party.
For many MPs cutting disability benefits went against the grain of all they stand for, while the government was desperate to avoid a repeat of the controversy that dogged the scrapping of the winter fuel payment – but also needing, in their view, to bring down a benefits bill projected to hit £70bn a year by 2030.
On the day though, Prime Minister Sir Keir Starmer, and his Work and Pensions Secretary, managed to unveil the reforms with minimal public dissent from Labour MPs – but only after days of frantic calls and meetings with MPs to try to persuade them not to rebel.
The majority of MPs on the Labour benches are supportive of moves to help people into work and more secure income streams.
But many are also deeply uncomfortable about the cost-saving element of the package – the restriction in benefit eligibility and reducing the value of some benefits.
The reforms amounted to a promised £5bn cut to the benefit budget.
But Chancellor Rachel Reeves is widely expected to push for more stringent savings because forecasts had already written in larger savings due to previous welfare promises, announced by the Tories and scrapped by this government.
Kendall has not ruled out making more cuts to welfare in future despite the fact she maintains her focus is not on saving money, but getting people into work.
But experts in welfare policy make the argument that “cutting” the social security bill is not as straightforward as government’s often claim.
And they are highly skeptical about how any savings could actually be found without the government resorting to freezing universal credit – therefore implementing real terms cuts – or changing the benefit cap to reduce the amount households are entitled to.
Not only is there not the political appetite for this across the current parliament, reducing standard working-age benefits would clash with the government’s current plan to try to even out the disparity in the amount someone can claim for standard benefits and for health-related welfare.
Ed Davies, Policy Director of the Centre for Social Justice (CSJ), told The i Paper there are two surefire ways to make savings in the short term.
“You can either cut the amount the individuals receive or the number of individuals receiving it. It is much better to do the latter as that means you are then getting people into work,” he said.
“And longer term they are almost certainly going to have to come back for more because these people are not in work.”
The CSJ has published a policy paper in which it warned it would be “a grave mistake to make savings by simply cheeseparing payments to some of the poorest people in society”.
It proposes structural reform to save money by reducing the number of people relying on benefits, such as healthcare and societal interventions as well as reform of the “fit note” system.
The CSJ also proposed separating Personal Independence Payment (PIP) support for those with physical ill-health from those with mental ill-health, arguing it should only provide direct financial assistance for people with additional living costs due to their condition.
Those who require other support, such as counselling, should be offered services in kind, instead, it argues.
Mr Davies said the government’s plan to change the eligibility for PIP claims to those who meet certain criteria would essentially amount to the same thing.
“Mental health is a difficult area to talk about and it is not about making savings, it’s about getting people into work. We have made recommendations around fit notes, not writing people off, and ensuring you have reassessments so you can get people back up and running when they are feeling better,” he said.
“But the part we have looked specifically at is PIP and disaggregating mental health conditions and payment in kind. The government has hinted that may be a direction they are going in by changing the point scoring system.
“If you had a ‘low level’ mental health problem, you would not reach the new 4-point criteria, so it is not that you are withdrawing help but you are providing help but not the cash.”
The savings, announced by Kendall will largely come from restricting PIP by increasing the number of ‘points’ needed to prove eligibility – with hundreds of thousands due to lose entitlements.
Cuts could cost more
Gideon Salutin, Senior Researcher at the Social Market Foundation think tank, warned cutting welfare crudely would end up pushing the cost to other government departments.
“There’s always more that can be cut but the bigger question is how productive would these cuts be in the sense of how many people are you going to push into work. And whether, in doing so, you increase demand for public services,” he told The i Paper.
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“During austerity, when different benefits were cut, you saw rising demand for homelessness on local authorities, for example. So that way you are not actually saving the state any money, you are just shifting the cost and the responsibility.”
The Social Market Foundation, led by former Blair-era No10 advisor Theo Bertram, welcomed the “right to work” focus of the government’s announcement to move people gradually off welfare support.
But Mr Salutin said he was “skeptical that much [the 5bn figure] can be cut from the budget”.
The think tank argued there are other ways to make savings from the welfare bill, such as looking at the future of the state pension triple lock.
The lock – which is currently supported by the government – has drawn criticism over the fact it has ratchet up the annual rise in state pension. It ensures the pensioner benefit rises in line with the highest of either average earnings, inflation or 2.5 per cent.
“I am in favour of keeping it linked to inflation – there is a good argument for it being linked to earnings as well, “ Mr Salutin said. “We are proposing cutting the 2.5 per cent link. It is currently forecast to be a determining factor between 2026 and 2029 [due to projected lower inflation] so that is where the savings come in.”
The think tank has calculated it would save £2.6bn over five years.
Longer term savings
Ultimately, if the government wants to stop the welfare bill growing the most secure way of achieving this would be reducing growing demand for welfare.
The CSJ, which was set up and is now chaired by former Work and Pensions Secretary Sir Iain Dunan Smith, has argued for early intervention to improve training and education and prevent younger people falling out of employment.
“In the medium term the big thing we are looking at is how other countries have devolved employment reform and got better outcomes. For example, in the Netherlands they spend more on frontline services,” Mr Davies said.
“And there are a lot of things in the education system. When we are thinking about youth benefits bill you have to start upstream about how you create employable people.
“Every single announcement this week was about cuts in DWP but fundamelly if you want to reduce the number of people on welfare it’s about education.”
He said, in the long term, the government must look at why there is a discrepancy between young men who are economically inactive, compared with women, as well as the impact of the “collapse” of the traditional family formation.
“These are policies that are hard to do but if you don’t broach it we are just going to be forever salami slicing,” he said.
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