A key Universal Credit benefit category ‘could be abolished’ according to reports. Labour is currently looking at the whole benefits system in a bid to get the welfare cost down.
Britain spends £65 billion on sickness benefits, more than the £60 billion defence budget and dwarfing the £20 billion spent on the police or less than £6 billion spent on the asylum system.
Last week it emerged that higher spending on Universal Credit and disability benefits has contributed to an expected £8.6 billion breach of the welfare cap, according to the Government. Work and Pensions Secretary Liz Kendall confirmed the forecast overspend in a written statement to MPs, adding “no action” was taken by the previous Tory administration to prevent it.
The welfare cap was introduced in 2014 in a bid to limit the amount spent on certain social security benefits and tax credits, such as disability living allowance, child benefit and pension credit. The Government has established a new welfare cap for this Parliament and Ms Kendall said the Department for Work and Pensions will outline a plan to ensure spending is on a “sustainable path”.
Under the plans it is anticipated that the long-term sick will be required to look for work and many will see their benefits cut. The changes would see hundreds of thousands of people see their money cut as Labour struggles with a soaring budget.
Under one option being considered, the universal credit “limited capability for work or work-related activity” category would be abolished, which would require claimants to make preparations for work and see them lose about £5,000 a year.
Ministers want to scrap the work capability assessment used to approve incapacity benefits and align the system more closely with assessments for personal independence payments (PIP), separate disability benefits that are paid whether or not someone can work, the Times reported.
In a written ministerial statement, Ms Kendall said: “The Office for Budget Responsibility has made a formal assessment that the previous government’s welfare cap and margin for 2024/25 is on course to be exceeded by £8.6 billion and is therefore not met.
“Under the terms of the Charter for Budget Responsibility, I am required to lay a paper before the House proposing measures to reduce spending to within the level of the cap or to explain why the breach is considered justified.
“The forecast breach, due in particular to expected higher expenditure on Universal Credit and disability benefits, is unavoidable given the inheritance from the last government. The likely scale of the eventual breach has been known since March 2023. No action was taken by the previous administration to avoid it.
“Whilst this Government has already shown that it will not shy away from difficult decisions, this breach could only have been addressed through implementing immediate and severe cuts to welfare spending. This would not have been the right course of action.
“The forecast breach underlines the previous government’s failure to control welfare spending and failure to bring forward genuine reform to get more people into work.”
People with mental health conditions will also find it harder to claim separate disability benefits under a far-reaching package of reforms that would represent the biggest changes to the welfare system for more than a decade.
A package is reportedly set to be finalised in the next two weeks to convince the Office for Budget Responsibility that the benefits bill can be brought under control.
Leaks suggest it will include tougher conditions for those signed off sick, most of whom have no obligation to prepare for or seek work. Figures this week showed 2.4 million incapacity benefits claimants now have no work conditions, up 50 per cent in five years.
PIP payments will also be overhauled and it has not been made clear if the most severely disabled would be given higher awards to compensate for the loss of disability benefits. Those with conditions such as depression and anxiety, the fastest-growing reasons for disability benefits, are likely to find it harder to claim. Ministers have told business leaders that changes to PIP thresholds and eligibility will be the first priority in spending cuts in March.