Labour Plans £5bn Pounds in Welfare Cuts as Treasury and DWP Battle for Control of Savings

The British government is preparing substantial welfare reforms aimed at reducing expenditure by approximately £5 billion, sparking internal conflicts over the allocation of these savings. Work and Pensions Secretary Liz Kendall is advocating for reinvestment of the funds into programmes supporting long-term sick individuals returning to work.

The Treasury’s position contrasts sharply with Kendall’s vision, as it seeks to utilise these savings to prevent additional tax increases and spending reductions later in 2025. This fiscal tug-of-war occurs against a backdrop of sluggish economic growth and mounting pressure from various governmental departments for increased funding.

The proposed reforms include significant changes to Universal Credit payments, potentially halving benefits for those currently deemed unfit for work compared to job seekers. The Department for Work and Pensions is contemplating various options, with potential savings ranging from £2 billion to £10 billion, though a £5 billion package appears most probable.

Labour’s approach to welfare reform emphasises employment support rather than punitive measures. Internal government evaluations of previous programmes demonstrate promising results, with participants 14% more likely to secure employment compared to similar benefit claimants. The cost-benefit analysis suggests each pound invested yields £1.67 in returns through increased tax revenue.

The reforms target the escalating costs of incapacity benefits, projected to rise from £25.6 billion to £35.5 billion by decade’s end. Additionally, Personal Independence Payments are under scrutiny, with monthly awards doubling since the pandemic. The government faces potential backbench resistance, though sources suggest new Labour MPs will likely support the measures.

Disability advocates have expressed concerns about the reforms’ impact. Scope’s James Taylor warns the changes could increase poverty rather than employment, advocating for non-compulsory support programmes instead of benefit reductions. The government’s challenge lies in balancing fiscal responsibility with maintaining essential support for vulnerable individuals.