By Shimeon Lee, policy analyst
This was supposed to be a blog defending the prime minister for sticking to his guns on welfare reform despite rebels in his own party. It was supposed to strike a hopeful tone, arguing that Labour’s massive majority in parliament would enable them to make politically unpopular choices to stabilise the public finances as they have repeatedly promised. Yet as has happened time and time again, it turned out to be another shameful surrender to the status quo leaving taxpayers staring down the barrel of further tax hikes this autumn.
Almost everyone understands the problem. Fuelled by an expanding definition of disability and tightening of other benefits, an ever increasing number of people are claiming health related benefits, which now cover a tenth of the working age population. As a result, costs have soared 36 per cent compared to pre pandemic levels, far outstripping growth in the economy. The primary disability benefit, personal independence payment (PIP) is one of the most generous currently offered by the state, lacking both a means test and taking the form of an unconditional cash payment, in addition to allowing recipients to bypass the benefit cap. With a massive influx of claimants and not nearly enough coming in to pay for it, either generosity or eligibility need to be reduced to keep the system sustainable.
Starmer’s original welfare bill set out to do just that, with the main reform being tightening eligibility for PIP. Qualification for PIP is currently based on scoring at least 8 points across ten categories. Points are awarded in each category based on how severe someone’s needs are, usually ranging from 0 to 8. For example, 0 means they can cook a meal by themselves, 2 means they need an aid or appliance to do so, 4 means they need supervision to cook and 8 means they cannot cook for themselves at all.
Crucially, the 8 points required to qualify for PIP can come from different categories meaning someone with less severe needs across several categories can still qualify. This is usually the case with mental health conditions where someone might “need prompting” to do things across several categories earning 2 points in each. Some 800,000 people are estimated to qualify for PIP on this basis. Starmer’s reform would change this by requiring claimants to score at least 4 points in one category in order to be eligible.
This is, frankly, a modest reform, barely scratching the surface of the ballooning benefits bill. Even with this and other measures, both claimant numbers and spending on health related benefits were set to be higher in 2029-30 than today, with “savings” coming from slowing spending growth rather than actually reducing spending. Yet the government was not even able to deliver this, with the prime minister surrendering to rebels in his own party and watering down the bill.
This means that tightened eligibility rules would only apply to new claimants. According to the Institute for Fiscal Studies (IFS), this will slash savings by more than half, from £5.5 billion to just £2.5 billion. As many have pointed out, this creates a two tier benefit system where two people with the exact same condition receive vastly different amounts depending on when they apply. No one in their right mind can possibly think that this is an improvement.
It bolts on another layer of complexity to an already convoluted and broken system. Part of the problem is that the current system is fundamentally not fit for purpose, meaning changes at the margins similarly make little sense. Critics were right to say, for example, that reducing eligibility would take away support from some who truly need it. However, this is only because the system is not set up based on individuals’ actual needs to begin with. Unlike countries like New Zealand where the government reimburses disabled people for certain expenses incurred because of their disability, there is no link between how much a person needs and how much they receive under the current system. In practice, this means some get less than what they need while others get more. Without fundamentally reforming the way PIP is delivered, it is impossible to distinguish between these two groups, resulting in any tightening of eligibility affecting both.
As long as this broken system remains in place it is impossible to seriously reduce the benefits bill without facing accusations of pushing the disabled into poverty. Nevermind that the government was still set to spend more on health related benefits than ever before.
The long term goal must be to return spending back to pre-pandemic levels by ensuring that payments are based on actual needs and directed only towards those without means. This entails grounding the welfare conversation in terms of what the country can actually afford instead of soaring aspirations and empty rhetoric that always come up short.