Ending PIP cash could help solve the mystery of Labour’s £3bn welfare cut

The Government must cap disability and sickness benefits if it is to achieve promised short-term welfare savings, experts have warned.

Rising economic inactivity, a rise in long-term illness and – despite years of unemployment benefit reform – soaring welfare costs have combined to create an urgent challenge for ministers.

This week Work and Pensions Secretary Liz Kendall launched a campaign to get more people into work through better careers support, but delayed changes to incapacity benefits – which are likely to prove much more controversial – until next year.

Labor has pledged to stick to Tory plans for welfare spending, meaning Kendall must find between £1.6 billion and £3 billion in welfare savings by 2029. Sources in her department acknowledge that cuts are inevitable.

The previous administration planned to address this problem by overhauling disability and sickness benefits, essentially raising the bar for who can qualify for support.

Reducing the cost of disability benefits

Kendall has yet to explain how she plans to save money. But the government has hinted it could also try to cut back on the disability welfare bill by reforming the work capacity assessment (WCA) process.

One former government source who worked under the Tories said they could not understand how the Office for Budget Responsibility (OBR) was supporting the £3bn welfare savings in the government’s forecast without a clearer policy plan for how how this can be achieved.

There is a conflict between the need for serious reform and political pressure from Labor MPs who are squeamish about cutting off benefits to some of the poorest people in society.

The source predicted the Labor government would eventually have to follow the same disability reform plans as its predecessors, along with the Jobcentre overhaul announced this week.

But Karl Emmerson, deputy director of the Institute for Fiscal Studies (IFS), said question marks remained over how much money could actually be saved through the reforms.

And he pointed to an OBR forecast which noted the Department for Work and Pensions “has yet to develop plans to evaluate” the WCA reforms – and said consultation on the previous government’s proposals was under judicial review, “which could cause delays in implementation” , even if Labor continues according to the same plans.

Risk that savings will not be achieved

“The OBR, in its budget forecast, highlighted the risk that this might not happen quickly and said there was a risk that it would not deliver savings,” Emmerson said. I. “There is always uncertainty about any reform.”

He said the “holy grail” for the government would be to develop a long-term strategy to keep the workforce healthy and increase the flow of people on benefits – both included in the Make Britain Work white paper.

But in the short term, a more direct approach will likely be needed to provide any confidence in savings, he warned.

“If you want to save money on benefits costs, you can either reduce the number of pounds per week or month, or make it harder to claim benefits, thereby raising the bar, which is what WCA reform does,” Emmerson said.

And he noted that even the proposed cost savings when reforming the WUA system remains only an estimate.

“The estimate was approved by the OBR, so I’m not going to say it’s not an unreasonable estimate, but I think it’s fair to say that these reforms are really uncertain, and that’s certainly the case where previous attempts to save money in this way have been successful. It didn’t turn out the way they imagined,” he said.

Prime Minister Sir Keir Starmer, like Kendall, has made a big show of toughening up the fight against benefit fraud. But while cracking down on organized crime that deliberately targets weaknesses in the benefits system may recover some public funds, it will not solve the problem of rising taxpayer bills, Emmerson added.

“That’s not the main reason why we’re spending billions more than four years,” he said. “There’s more to it than that and it’s about public health.”

Replacing cash PIP with payment in kind

Ed Davies, policy director at the Center for Social Justice, also said Labor ministers may have to follow the lead of their Conservative predecessors in seeking to change the way sickness and disability benefits are administered if they want to make savings in this parliament.

“The white paper largely doesn’t talk about the Social Security structure, and you need to do that to save. Here’s who gets benefits, how you’re eligible, how much you get.

“The previous government began looking at Personal Independence Payments (PIP). And one area the government may want to look at is whether you are paid in kind rather than cash. So instead of mental health patients getting money, they could get talk therapy.”

He added: “Another area is putting conditions on those who are inactive. There are many people who have been laid off from their jobs but want to work, and about 3 million people are furloughed due to illness for long periods of time without having to work.

“You also have some of the most unwell and disabled people in the country who will definitely never work, but you also have people who have been discharged for a specific illness but might want to come back and it’s about keeping in touch with these people. “

An estimated 700,000 to 1 million people are out of work but might want to do so, he said, which could result in savings “of billions.”

The real problem with benefits

But Davis said the real question ministers need to address is why so many people are losing their jobs in the first place.

And he called on the government to consider further developing its plans to increase the number of regional employment services.

“One of the things we’re looking to do is to move support for adult employment and learning to a more local level,” he said. “At the moment, employment support is ordered by the DWP, but they have no way of knowing what is going on in someone’s life or area.”

The White Paper outlines plans to begin this process, but does not commit to a full transfer of services.

Davies said this would mean transferring around £600 million from the DWP to regional leaders. But by getting more people into work it could lead to overall savings over the course of a decade or even this Parliament, he said.

Meanwhile, Sir Iain Duncan Smith, the Conservative former work and pensions secretary, has expressed further doubts about whether the government will be able to make significant changes to the benefits bill over the next few years.

Ministers said they hoped to put forward proposals for disability benefits in the spring, which would then be consulted on before implementation.

But Duncan-Smith told LBC he believed the time had come “for the birds” and stressed that without a tougher approach to setting conditions and sanctions, any reform would fail.