Labour Told to Means-Test Disability Benefits to Save Billions
A report suggests reforms could cut spending by £8 billion annually, potentially affecting younger claimants with anxiety.
The Labour party has been advised to implement means-testing for disability benefits, a move that could save approximately £8 billion per year and reduce payments to middle-class individuals experiencing anxiety, according to a recent report. The Institute for Fiscal Studies (IFS) proposes that integrating Personal Independence Payments (PIP) into the existing Universal Credit (UC) system, which is already means-tested, would allow for more targeted support to those most in need.
The IFS report indicates that means-testing PIP could reduce overall spending by a third, yielding an initial saving of £8.2 billion. While the think tank acknowledges that this saving might decrease over time due to potential 'behavioral responses' from individuals claiming UC to retain their PIP, a substantial saving would likely persist.
Eduin Latimer, a senior research economist at the IFS, stated that reforms to PIP would inevitably result in both 'losers as well as winners,' emphasizing the need for the government to clarify the purpose of PIP. "If it is to help disabled people in the greatest need, there is a case for targeting support on those with the most severe disabilities or on the lowest incomes," Latimer said.
This recommendation comes amid rising spending on PIP. Department for Work and Pensions (DWP) figures show that over four million people are currently receiving PIP, with spending increasing from £14 billion in 2019-20 to an estimated £25 billion in 2025-26, and projected to reach £34 billion by 2030-31.
Last year, Labour abandoned a plan to reduce the disability benefits bill by £5 billion following significant opposition from within the party. A review led by social security minister Sir Stephen Timms is expected to deliver its findings this autumn.
Ahead of the Timms Review and the upcoming budget, the IFS has put forth several reform suggestions for PIP. One proposal involves ceasing PIP claims for all individuals under 30, which could save £5.5 billion annually. However, the IFS cautioned that many in this age group have severe disabilities. A modified approach suggests limiting PIP for under-30s to only those with the most severe conditions, which could still result in savings of up to £2.2 billion per year.
Separately, a report by the Re:State think tank highlights that the UK is an outlier in its approach to disability benefits compared to similar nations. In 2024, 7.8 percent of the UK's working-age population claimed benefits due to a medical condition, a 50 percent increase since 2016. This contrasts with Denmark (0.2 percent), France (0.6 percent), and Norway (2.5 percent).
The Re:State report describes the average PIP award of £7,420 per year as 'generous' by international standards, with some 37 percent of claimants receiving enhanced elements for a maximum annual award of £10,120. This maximum payment is considerably higher than in countries like New Zealand and Denmark.
Furthermore, the report notes that PIP provides 'unconditional' cash, allowing recipients to spend it as they see fit without requiring proof of how it addresses their condition. Unlike Denmark, France, New Zealand, Norway, and Sweden, which require evidence of costs such as invoices and receipts, the UK does not review the specific extra costs faced by claimants. Charlotte Pickles, chief executive of Re:State, stated that Britain has "confused cash with compassion" and has "broken the welfare state."