The Labour party could realize savings of approximately £8 billion per year by implementing means-testing for disability benefits, a move that would reduce payments to middle-class individuals with conditions such as anxiety, according to a recent report. The Institute for Fiscal Studies (IFS) suggests that integrating Personal Independence Payments (PIP) into the existing means-tested Universal Credit (UC) system could cut spending by a third, leading to an initial saving of £8.2 billion.
The IFS report notes that this reform would more closely align support with individuals' greatest needs. While acknowledging that behavioral responses might diminish long-term savings, the think tank asserts that substantial financial benefits would still accrue. Eduin Latimer, a senior research economist at the IFS, emphasized that any reforms to PIP would have both beneficiaries and those who might receive less support, underscoring the need for the government to define the precise 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 stated.
This proposal comes amid rising expenditure on PIP. Recent figures from the Department for Work and Pensions (DWP) indicate that over four million people are currently receiving PIP, with the number of claimants reaching a record high. Spending on PIP has surged from £14 billion in the 2019-20 fiscal year to an estimated £25 billion in 2025-26, with official forecasts projecting an increase to £34 billion by 2030-31.
Last year, Labour abandoned plans to reduce the disability benefits bill by £5 billion following significant opposition from within the party. A review by social security minister Sir Stephen Timms is currently underway and is expected to report this autumn.
Ahead of the Timms Review and the upcoming budget, the IFS has outlined several reform suggestions. One proposal involves discontinuing PIP claims for all individuals under 30, which could save £5.5 billion annually. However, the IFS cautions 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 yield savings of up to £2.2 billion per year.
Parallel research from the Re:State think tank highlights that Britain's approach to disability benefits is an outlier compared to similar nations. The report indicates that in 2024, 7.8% of Britain's working-age population claimed extra-cost benefits due to a medical condition, a 50% increase since 2016. In contrast, comparable figures are 0.2% in Denmark, 0.6% in France, and 2.5% in Norway.
With eight different PIP award levels and an average annual payment of £7,420, the report deems Britain's maximum award of £10,120 per year as generous on an international scale. The report also points out that PIP payments are unconditional, allowing recipients to spend the funds as they see fit without requiring proof of expenditure related to their condition. Unlike Denmark, France, New Zealand, Norway, and Sweden, which all require evidence of specific costs through documentation like invoices and receipts, no other country provides disability benefits without assessing an individual's extra costs.
Charlotte Pickles, chief executive of Re:State, suggested that Britain has "confused cash with compassion" and that the government has "broken the welfare state."