The Department for Work and Pensions (DWP) is facing major budget cuts in the lead-up to the Chancellor’s Spring Statement. Rachel Reeves has reportedly proposed billions of pounds in draft welfare spending cuts, potentially impacting millions of benefit claimants of services like Universal Credit and Personal Independence Payment (PIP).
These proposals were submitted to the Office for Budget Responsibility (OBR) – the Government’s official forecaster – on Wednesday for review before the March 26 announcement. Since Ms Reeves’ Autumn Budget, the OBR has indicated that her £9.9billion fiscal headroom may have been eroded due to global factors like trade tariffs, rising inflation, and increased borrowing costs in the UK.
To manage the forecasted budget deficit, insiders expect “politically painful” welfare cuts to curb the rapid growth of health-related benefits, according to the BBC.
Last year, the Government spent £65billion on sickness benefits, marking a 25% increase compared to the year before the Covid pandemic. This figure is projected to rise to approximately £100billion by the next general election.
When asked on Wednesday if welfare cuts were the right approach, Justice Secretary Shabana Mahmood told BBC Radio 4’s Today programme there had been a “huge rise in the welfare budget” and there were “too many” young people not in work, education or training.
She said: “There’s a moral case here for making sure that people who can work are able to work, and there’s a practical point here as well because our current situation is unsustainable.”
What could change?
In January, Work and Pensions Secretary Liz Kendall said the welfare budget has to be put on a “more sustainable course”, indicating plans to focus on encouraging more people into work. She said: “We’re going to get the benefits bill on a more sustainable course – and it has to be. We cannot accept these costs of failure, failure for individuals, failure for businesses and failure for the economy.
“But the way to do this is to get more people into work through the reforms that we’re putting in place in our Jobcentres and through reform of the benefit system. And we’ll be bringing forward our green paper on reforming sickness and disability benefits in the spring.”
Changes to the Work Capability Assessment (WCA), which determines a person’s ability to participate in the workforce, could take shape.
Labour aims to save £1.3billion annually by reforming the assessment, as highlighted in its manifesto. After a High Court judge found the former Conservative government’s consultation on WCA reforms unlawful, Labour has pledged to re-consult on the changes.
The WCA, introduced in 2008, has been controversial, with many claiming it leads to incorrect assessments and mistrust. The previous government’s proposed changes in 2023 would have resulted in 450,000 fewer people qualifying as having limited work capability. How Labour plans to implement these reforms remains unclear.
The Personal Independence Payment (PIP) benefit may also be called into question. The former Tory government previously consulted on an overhaul, such as payment rate ranges, as well as new evidence requirements. The social security minister, Stephen Timms, told MPs in October that the DWP was carrying out a “new survey of Personal Independence Payment customers to understand more about their disability-related needs.”
Separately, the DWP is seeking new powers to combat benefit fraud, including the ability to disqualify drivers and directly reclaim funds from welfare cheats’ bank accounts.
Employment Minister Alison McGovern believes taking fraudsters to court to disqualify their licences will deter those who refuse to repay fraudulently claimed benefits. The DWP also plans to work with banks to identify claimants with over £16,000 in their accounts and obtain independent powers to gather evidence without police help.
Under the proposed Bill, fraudsters could face up to two years of driving disqualification for failing to repay debts, with courts able to suspend the licences of those owing over £1,000 and ignoring repayment requests. However, the DWP will not have direct access to individuals’ bank accounts.
Some economists have welcomed suggestions that the welfare bill will be targeted during the Chancellor’s Spring Statement.
Tom Clougherty, executive director at the Insitute of Economic Affairs, told the Expresss: “The Government has a much longer-term problem than just hitting their self-imposed spending targets. The state is bigger than ever, which is a drag anchor on growth. The scale of our unfunded liabilities is an existential challenge to a Government of any stripe.”
He added: “The Chancellor must bear this in mind when considering her next steps and must be radical in looking where to cut. No stone should be left unturned, but the ballooning welfare bill that has increased so much just over the last few years is a good place to start.”
Others have criticised prospective plans. Steve Wright, Fire Brigades Union general secretary, said any welfare cuts “would be an outrageous attack on the poorest and most vulnerable”.
Debt charity Christians Against Poverty (CAP) also voiced concern about the potential impact of welfare cuts, stating 21% of UK adults already report their income falls short of covering basic essentials, according to its research.
A group of leading charities including the Joseph Rowntree Foundation, have written to Ms Kendall asking that any planned changes are made after meaningful consultation with those who are likely to be affected.
A DWP Spokesperson said: “We do not comment on speculation. We have been clear that the current welfare system needs reform, so it is fairer on the taxpayer, helps long-term sick and disabled people who can work to find employment, and ensures people receive the support they need. We will bring forward our proposals for reform within weeks as part of the Plan for Change.”
