Tuesday, March 18, 2025
Speculation over Labour's benefit cuts
The paper says that the analysis by the respected Institute for Fiscal Studies comes as work and pensions secretary Liz Kendall will unveil plans to slash benefits by around £5bn:
The government has already indicated that it will focus on working-age welfare claimants, particularly those claiming disability and incapacity welfare payments, with fears that the annual bill for these benefits will hit £70bn by 2030.
The concerns come as the Organisation for Economic Cooperation and Development (OECD) downgraded the UK’s already low growth forecasts in the wake of the impact of Donald Trump’s tariffs around the world.
Chancellor Rachel Reeves met with regulators on Monday to discuss ways of cutting red tape to boost growth in a bid to kickstart the economy (PA Wire) The government insisted that its hand is not being forced into making benefits cuts to balance the books as Ms Reeves met with regulators to hear their ideas on boosting growth.
But IFS director Paul Johnson warned that Ms Reeves already had “no room for manoeuvre” in her spring statement next week, which is already being dubbed “an emergency Budget”.
According to the IFS, hitting this target will mean a potential cut of 16 per cent for claimants.
It noted: “Suppose they looked to save £5bn – a widely quoted number – from disability benefits alone by end of the parliament. To do it entirely through cutting benefit values would require a 16 per cent real-terms cut – £1,150 per year on average for the 4.3 million people expected to be on them by 2029.”
It added: “A 16 per cent cut in the value of incapacity benefits – £1,200 on average per year from 4.1 million people – would save £5bn.
“To make that saving through the caseload would require stopping it rising almost entirely. This would be a big break from post-pandemic trends (though not pre-pandemic).”
While the government indicated over the weekend that it would abandon plans to freeze personal independence payments (PIPs) following anger from within Labour, the thrust of the policy to reduce the benefits bill is being pushed ahead.
In particular, ministers are alarmed that 2.8 million adults of working age are stuck on sickness and disability benefits out of work. That number is set to increase to 4 million by 2030, costing the taxpayer £70bn a year.
Mr Johnson warned that the good news for Ms Reeves is that things cannot get worse.
He told Times Radio: “It’s a funny kind of good news ... in the sense that in some respects, things are so bad that hopefully they can only get better.
“So the chancellor’s got no room for manoeuvre in terms of money to spend in the spring statement or forecast or Budget or whatever we’re getting in 10 days’ time.”
He noted that the UK is spending about £20bn more on incapacity and disability benefits than it did five years ago.
He said: “We’re spending so much money on disability and incapacity benefits that surely there must be a way of getting that cut back. Our public services are so inefficient and their productivity has collapsed so much, again, surely that if they can be made to get better.”
He added: “But of course, the fiscal numbers, the Budget numbers, are based on the assumption that things basically carry on as badly as they have been. So if they can get a bit better there, maybe there’s a bit more room for manoeuvre.”
Of course Reeves may not go as far as all this, but the fact that many people think she will do so is clearly causing jitters amongst Labour MPs. Things could get very stormy indeed.
