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Labour is planning billions in welfare spending cuts as part of Rachel Reeves’ upcoming spring statement, new reports have suggested.
The chancellor will be announcing her plans for the government’s finances on 26 March, with a raft of multi-department cuts floated.
The Department for Work and Pensions (DWP) is expected to bear the brunt of these, with as much as £5bn reportedly to be earmarked for savings.
Estimates of exactly how much Ms Reeves is looking to pull back from government receipts have only increased in recent months.
Treasury insiders have indicated that the £9.9bn fiscal headroom left after Labour’s October Budget has been severely reduced, with one telling the BBC that “the world has changed” since then.
The subsequent months have seen the economy essentially flatline, while borrowing costs have risen and mass uncertainty takes hold amid tensions around the US and Ukraine.
A Treasury source also told The Independent that taking action on welfare “is something we would need to do” regardless, given the rising welfare bill. Spending on health-related benefits rose to £65bn last year, up 25 per cent from the year before the Covid pandemic. This is forecast to rise to £100bn before the next election.
Ministers have shared their ambition to reduce this figure, with justice secretary Shabana Mahmood saying on Wednesday: “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.”
However, a group of leading charities including the Joseph Rowntree Foundation and Z2K have written to DWP secretary Liz Kendall asking that any planned changes are made after meaningful consultation with those who are likely to be affected.
Here are the key changes that Labour could announce on 26 March:
Work capability assessment overhaul
Changes to the work capability assessment are likely central to Labour’s plans to cut welfare spending, with a plan to “reform” the measure confirmed in the party’s manifesto.
Ministers are understood to be looking to save £1.3 billion a year from changes to the WCA after pledging to match spending commitments made by the previous government – but not necessarily the policy detail.
The party has said it will re-consult on the changes after the Conservatives’ consultation on the plans was found unlawful by a High Court judge for being “unfair” and “misleading.”
This work capability assessment is used to determine a person’s ability to participate in the workforce. It decides what work-related activities they must carry out and if they are entitled to any extra support.
It has attracted controversy since its introduction in 2008, with reports in 2018 and 2023 both finding that too many incorrect assessment decisions continue to fuel mistrust of the process.
The previous Conservative government announced in 2023 that the Work Capability Assessment (WCA) would be reformed, with the qualifying criteria being significantly overhauled.
According to research from the Department of Work and Pensions (DWP), the changes would have meant that around 450,000 fewer people were considered to have limited capability for work.
PIP changes
The Personal Independence Payment (PIP) is another health-related benefit. Unlike the WCA, assessments for PIP set out to determine if someone needs help with extra living costs, even if they’re working.
It is currently paid in two parts – daily living and mobility – at two possible rates each, meaning there are four potential levels of payment. Assessors will decide if the applicant needs help with everyday tasks for the first part, and if they need help with getting around for the second.
They will then “score” them against twelve descriptors to determine if they are eligible for the lower or high weekly rate of each part. The maximum a person can be paid a week is £184.30.
The previous Conservative government had consulted on changing the assessment to widen the rates of payment. One idea was to follow the model used in Norway, where claimants would need to provide a letter from their GP rather than attend face-to-face assessments. They would also need to provide evidence of the costs associated with their condition.
Labour has not ruled out the idea, with social security minister Stephen Timms telling 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.”
However, the party is also continuing work on a separate program to ‘overhaul’ the benefit, including decisions, eligibility and payments.
Benefit vouchers
There are concerns that the reforms to PIP could be taken even further, however, seeing weekly payments replaced with vouchers. This is another idea that the Conservatives said was under consideration in June. It has not be ruled out by Labour ministers.
While PIP payments are designed to with extra living costs, claimants are free to spend the money however they see fit. A voucher scheme could see this change, forcing claimants to only use funds for specific costs. Responding to the proposals, charity Disability Rights UK called them “insulting” and dangerous”.
It’s unlikely the government will press ahead with a move to vouchers, hinting that they are against the idea.
Responding to concerns raised by Work and Pensions Committee in November, secretary of state for work and pensions Liz Kendall said: “this issue of empowerment and giving people power and control over their lives is really important because I think it leads to better results, so I understand people’s real concerns about that”.
Labour MP and committee chairman Debbie Abrahams has since gone further in opposing the plans, telling The Mirror in December: “I think it’s nonsense and I cannot see that happen. It is suggesting that it’s ok for disabled people to be provided with a voucher instead of money – as though they aren’t responsible with their money.”
New bank account powers
As part of the DWP’s “fraud crackdown”, agents will be given new powers to recover money from those in debt to the department. The move is expected to save £1.5 billion over the next five years.
This will include the ability to ban individuals committing fraud from driving, and getting warrants to search their premises and seize items like smartphones and computers. This will only be in extreme cases, however.
The DWP will also gain the power to recover money directly from bank accounts of those not on benefits or in PAYE employment. It will be able to request bank statements to prove that there is enough money available to pay what is owed, although not access bank accounts directly.
Another bank power will include ‘eligibility verification’ which will give the DWP the power to require banks to provide data to help identify when an applicant is not meeting the eligibility criteria for a benefit they have applied for. For instance, to be eligible for Universal Credit, an applicant must have no more than £16,000 in savings, except in exceptional circumstances.
The Fraud, Error and Recovery bill which is set to deliver these changes is currently in its committee stage, with stakeholders giving evidence on its contents. Several experts have expressed concern that ministers have said a code of practice will only be shared when the bill is in its final version, meaning it is unclear how the powers it grants will work in practice.
The DWP has been contacted for comment.
