Reports immediate PIP payments cut on the table as Labour tackles benefits

Chancellor Rachel Reeves has indicated that difficult choices lie ahead

The Institute for Fiscal Studies (IFS) has warned that Personal Independence Payment (PIP) claimants could face immediate cuts to their benefits as part of efforts to manage spiralling costs. Labour is exploring various measures to tackle the increasing expense of disability and incapacity benefits, which may involve reducing the amounts awarded, reports YorkshireLive.

Chancellor Rachel Reeves has indicated that difficult choices lie ahead, with the first Budget at the end of October under a new government set to involve "difficult decisions" on tax, spending, and welfare. This comes after earlier discussions about reining in PIP costs, including proposals to replace cash payments with vouchers.

While the IFS report does not specifically address the voucher scheme, it suggests that cutting benefit levels would be a straightforward way to control rising expenses, stating: "A very direct option would be to reduce the level of health-related benefits. This could be done almost immediately and deliver predictable savings."

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However, the report also warns that any reductions in eligibility or benefit amounts would inevitably lead to lower incomes for those receiving health-related benefits, noting that individuals on disability benefits are more likely to experience poverty and material deprivation than other working-age adults.

The Institute for Fiscal Studies (IFS) has issued a warning that compensating for financial losses due to cuts could present significant challenges for some beneficiaries, especially those who are unable to work because of their conditions, potentially affecting their health. The Department for Work and Pensions' (DWP) Personal Independence Payment (PIP), the main disability benefit for individuals of working age, offers up to £737 monthly to over 3.6 million people.

A large portion of these claimants, nearly 1.4 million, receive it for mental health issues, reports Birmingham Live.

Separate incapacity benefits are available for those whose health limits their ability to work, with Universal Credit providing an extra £416 per month to those classified as having 'limited capability for work and work-related activity' (LCWRA). Employment and Support Allowance (ESA) provides similar support for those unable to work, with payments of approximately £878 every four weeks.

However, thousands of ESA recipients are currently being moved to Universal Credit as part of a 'managed migration' from older benefits.

A report indicates that half of those receiving disability or incapacity benefits are claiming both types. The IFS suggests that the surge in PIP claims is due to the fact that it is not means-tested and is being used to supplement income because unemployment benefits are insufficient.

In response, campaigners have argued that "slashing" disability payments will only increase the hardships faced by millions.

The Institute for Fiscal Studies (IFS) has claimed that simply reforming disability benefits will not be enough to meet fiscal targets. The IFS explained: "Saving money by changing eligibility is difficult. The coalition government planned to reduce spending by replacing DLA (Disability Living Allowance) with PIP in 2013. In fact, spending grew faster following the introduction of PIP."

To address the issue of rising claim numbers, the institute recommends investing in the NHS and employment support programs for disabled individuals.

Although this approach, described in their new report, would incur significant initial costs, it could eventually lead to a decrease in benefits claims.

Alternatively, the IFS suggests the option to "do nothing", which might be regarded as "reasonable" if the increase in claims is due purely to worsening public health. Yet, this inaction would see health-related benefit spending soar by £15 billion by 2028.

James Taylor from Scope responded to the IFS labeling the surge in health-related benefit claims as a "fiscal headache" for the Government by saying: "There are 16 million disabled people in the UK, many are in work, some may want to work but have been denied opportunities and some may be unable to ever work. We should not be demonising disabled people for being unwell and regarding them as a burden on budgets."

"Government needs to take time to understand what is driving the rise in ill-health, why our public services are crumbling, and how best we can support those who are disabled. Going straight to slashing benefits will make life harder, not better, for millions of people."

The IFS report has highlighted a significant surge in individuals claiming disability and incapacity benefits since the pandemic began, with expectations that claimant numbers will continue to increase. It underscored that this "rapid growth in health-related benefits seems to be largely a UK phenomenon", contrasting with trends in countries like Australia, Canada, Germany, Ireland, the Netherlands, Sweden, and the US, where such claims have decreased.

According to the IFS, without intervention, the UK is on track to become one of the top spenders on health-related benefits. Data indicates an uptick in disability benefit applications, yet the approval rate remains relatively unchanged.

As fewer beneficiaries leave the system, the overall number receiving these benefits is rising. The report's authors remarked on the uniqueness of the UK's system, noting that "the UK is one of the few countries with a disability cash benefit such as PIP, which is not conditional on employment or income", pointing out the relative ease of applying due to the absence of stringent conditions like means-testing.

The "the big increase in NHS waiting lists" is also taken into account, but the IFS suggests that deteriorating health cannot be the sole reason for a rise in claims as similar increases are not observed in other countries. It proposes that more individuals might be resorting to disability benefits for additional income because out-of-work financial support alone is insufficient.

Spending on health-related benefits for working-age individuals has escalated from £36 billion in 2019/2020 to £48 billion in 2023/2024, with official forecasts predicting this expenditure to further climb to £63 billion by 2028/2029. The total spending on these benefits across all age groups has risen from £52 billion in 2019/2020 to £65 billion in 2023/2024, according to data.

New claimants are typically younger, with a 150 per cent surge from those under 40, and are more likely to be due to mental health conditions (37 per cent of new awards). Women makeup the majority (58 per cent) of these claimants.