Labour unveils disability benefits reforms that aim to save over £5bn

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Sir Keir Starmer’s government has unveiled reforms to disability benefits that it says will save more than £5bn a year by the end of the decade, in a move that risks stoking the biggest backbench rebellion of his premiership.

The plans, presented by UK work and pensions secretary Liz Kendall on Tuesday, will remove disability and incapacity benefits from hundreds of thousands of people by the 2029-30 financial year.

The Labour government, which is seeking to plug a fiscal gap, argues that without reform, Britain’s welfare costs will balloon and a generation of young people risk lacking incentives to work.

Kendall said millions of people who could work were “trapped on benefits”, adding that the social security system was “holding the country back”. She noted that comparable countries had outpaced the UK in reducing health benefit claims to pre-pandemic levels.

But the proposals, outlined in a consultative green paper, have already sparked a widespread backlash within Labour, with MPs and voters saying that the government should not target the poorest in society.

The biggest proposed changes to the system involve tightening eligibility rules for personal independence payments, the main form of disability benefit. This is expected to make it harder for people with mental health conditions and less severe physical difficulties to receive the support.

The changes would require a vote in the House of Commons, people briefed on the plans said, pitting Starmer and his ministers against a growing number of backbench MPs who object to the measures and raising the possibility of the largest rebellion to date.

Kendall also promised “stronger income protection” for people who had lost their jobs, in a reference to a new insurance system that will not require proof that recipients are unable to work.

According to the green paper, the new entitlement, for people with a recent work record, will replace two existing benefits and be paid at £138 a week for a limited time.

Those claiming the benefit would be expected to look for work unless their health prevents them from doing so. After their entitlement runs out, they would be able to claim jobless benefit at the lower rate available through universal credit, the basic rate of support for people out of work.

Labour is seeking to find billions of pounds in savings ahead of chancellor Rachel Reeves’ March 26 Spring Statement, because of recent projections by the UK’s independent budget watchdog indicating that the government’s fiscal room for manoeuvre has shrunk by up to £10bn.

Changes to disability and incapacity benefits are expected to generate around £6bn in gross savings, according to people briefed on the plans.

About £1bn of these savings will be reinvested into employment programmes to help people currently on health-related benefits into work.

Kendall announced cuts to the highest level of incapacity benefits, while increasing universal credit, arguing that there was currently “a clear financial incentive to define yourself as incapable of work”.

People currently claiming the top level of incapacity support, which entitles them to a £416 monthly top-up, will have their rates frozen, while these will be reduced for new claimants, she said.

Those receiving the highest level of support will also be subject to a “duty to engage”, having previously been exempt from any conditions.

Kendall added that universal credit would increase above inflation for the first time since it was introduced more than a decade ago, as the government sought to narrow the gap between the basic rate and extra health payments.

But this rebalancing will raise the basic rate for new and existing claimants by just £7 a week, from £91 a week in 2024-25 to £98 a week in 2026-27.

The health-related element will be frozen for existing claimants in cash terms until the end of the decade. It will be cut by £47 to £50 per week for all new claimants from 2026-27. 

The work and pensions secretary said an “additional premium” would be given to people with severe life-long conditions that permanently prevent them from working, “to give them the financial security they deserve”.

Kendall also announced that Labour would scrap a separate assessment for incapacity support, instead assessing claimants through the main system for disability support.

She pledged to increase the frequency of existing claimants’ reassessments, which has gone down markedly since the pandemic.