Labour government to cut welfare spending ‘by billions’

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 some 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.