Good afternoon from New Economy Brief.
Last week, we unpacked the Chancellor’s Spring Statement, exploring how her announcements could affect economic growth and the long-term sustainability of the public finances. Many of the Chancellor's decisions were taken in order to meet her self-imposed fiscal rules, and hinged on highly uncertain forecasts from the Office for Budget Responsibility – an approach that has met with widespread criticism from experts.
But behind this fiscal debate is a very real, very human cost. The majority of cuts come from reforms to disability and incapacity benefits. These include increasing the threshold for Personal Independence Payment (PIP) eligibility and reducing the health element of Universal Credit. According to disability charity Scope, these are the biggest disability benefit cuts on record.
This week, we explore the scale of disability benefit cuts, the economic and moral arguments around this controversial decision, and the impact it will have on millions of people.
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The scale of the cuts
The scale of these reforms is huge. By 2029-30, 3.2 million families will be affected, losing an average of £1,720 each. The government’s own figures suggest the cuts will push 250,000 people into poverty by 2030, including 50,000 children, and others think the total could actually be around 340,000. These are the key changes:
Reducing access to PIP. Central to the government’s reforms is tougher PIP assessments. Personal Independence Payment (PIP) is money paid to those whose disability means they need extra care or help with mobility. It is a non-means-tested benefit and has two components: the daily living part (for example if someone needs help with things like preparing food, getting dressed or managing money) and the mobility part which relates to getting about and leaving the home. The new changes, which will take effect in April 2026, apply to the first part and now require people to score four points in at least one category of daily living activities. For context, things like needing assistance to get in and out of the shower only score a three. Being unable to manage toilet needs without supervision or prompting scores a two. But because these issues are in separate categories on the PIP form, a person with these two needs would not necessarily qualify for payment as neither reaches a score of four.
Reducing the health element of Universal Credit. While PIP is provided to help people with the additional cost of having a disability, whether they are in work or not, the health element of Universal Credit (UC) is designed to supplement the income of those whose health condition or disability reduces their capacity to work or engage with employment support. This is otherwise known as the Limited Capability for Work-Related Activity (LCWRA) element. From next year, this will fall from £97 to £50 per week for new claimants, and be frozen at the current level for existing recipients. The government is also considering excluding under-22-year-olds from the health element of UC, feeding into a narrative that the rise in health-related benefit costs is due to young people who could be in work.
The Work Capability Assessment. The government also announced that it would scrap the Work Capability Assessment (WCA) in 2028 and instead use the PIP assessment to determine if someone receives the health element of UC. Many civil society organisations have expressed concern over this. Disability Rights UK, for example, has highlighted the inaccuracy of PIP assessments. The charity also explained that scrapping the WCA could mean that disabled people would no longer be exempt from work-related conditionality on the grounds of disability. In other words, even those who can’t work could still in theory be sanctioned for not seeking employment, as this would now be at the discretion of Jobcentre work coaches.
Impacts. How much these cuts will affect households obviously depends on their specific circumstances, but some people may lose catastrophic amounts. According to the Joseph Rowntree Foundation (JRF), a single person losing both PIP daily living and LCWRA could lose £795 a month after housing costs – 57% of their income. Tightening PIP assessments means many could also lose out on carer’s allowance. In this situation, a household in which one person cares for another could lose £1,005 per month.
Cold Comfort. Amidst the cuts was a small uprating to Universal Credit – worth an extra £3 per week to a single person aged 25 or over – and the announcement of £1 billion for employment support. While welcome, these policies are dwarfed by the sheer scale of benefit cuts announced and the devastating impacts they will have on disabled people.
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The government’s rationale
While a major driver of the Chancellor's decision to cut benefits was to meet her fiscal rules, the government has maintained that the real rationale is "to get Britain working.” According to official figures, around 9.3 million people are out of work and not looking for employment. One in eight young people (aged 16 to 24) is not currently in work, education or training. But while many of our economic woes stem from global instability that is affecting many other countries too, since the pandemic the UK has become an outlier when it comes to economic inactivity. Most major economies have returned or even surpassed pre-Covid employment rates, but the UK’s employment recovery has remained stuck, according to the Resolution Foundation, with higher rates of disability benefit claimants than our peers. So what’s going on?
Get Britain working? As the Financial Times’ Stephen Bush points out, we don’t have the complete answer to this question. The Resolution Foundation has suggested that the large gap between the Universal Credit rate for someone who is unemployed (the basic rate or standard allowance) and the rate for someone who is out of work because of ill health creates a financial incentive for people to be categorised in the latter group. JRF research shows that the low level of the standard allowance means that around 5 in 6 low-income households on UC are going without essentials. The small increase to the standard allowance the government announced in the Spring Statement will take it to £106 a week by 2029/30 – still significantly below the £120 a week that JRF calculates a single adult would currently need to cover the cost of essentials.
is a level as a proportion of average earnings. The government’s assumption is that there are people claiming incapacity benefits who should be working instead and that reducing their incomes will encourage them to find work. The first issue with this is that many disabled people who receive disability benefits are already in work, including one in six PIP recipients. Research also shows that the UK social safety net is among the weakest in the rich world – the poorest households in Slovenia are better off than their UK counterparts.
A health crisis. Of course, part of the problem is that so many people are sick. The Institute for Public Policy Research (IPPR)’s Commission on Health and Prosperity concluded that the British population is getting sicker, with a sharp rise in the prevalence of many long-term health conditions. It argues that the ‘disease burden’ is avoidable through better prevention and treatment, and by redesigning services and society around people’s needs. This is another case where upfront investment is needed to save the exchequer money in the long term and boost growth by enabling more people to participate in the labour market.
Disabilities or “work-limiting conditions”? Whatever improvements can be achieved through investment in healthcare, some disabilities and long-term illnesses are unfortunately unavoidable. Some feel that this has not been taken into account, and that the government’s rhetoric has been insensitive to people’s needs. As Frances Ryan argues, the language of “work-limiting conditions” reframes disabilities and illnesses away from being conditions that affect human beings, but simply an obstacle to work. Disability charities are calling on the government to “listen to disabled people”.
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All pain, no gain
Far from saving money, these cuts are likely to impose higher long-term costs on public services. Reduced financial support will push more people towards NHS services, social care, and crisis support, putting more pressure on already overstretched systems. JRF has previously found that poverty-related expenses, including healthcare and lost productivity, already cost the UK economy £78 billion per year. More recently, the Child Poverty Action Group (CPAG) has estimated that child poverty alone costs the UK an annual £39 billion. By worsening financial insecurity, the government’s welfare reforms could drive these costs even higher.
What about the growth mission? There is also the simple economic argument that reducing people’s incomes also reduces their spending power, hitting local businesses and the wider economy at a time when the government is “betting the house on growth”. For example, the New Economics Foundation (NEF) has calculated that cuts could knock £12.6 billion off GDP by 2029/30 through reduced demand and increased poverty, wiping out any savings.
Value outweighs costs. Economists at Pro Bono Economics argue that the economic value of disability benefits far outweigh their cost, with every £1 spent on disability support increasing wellbeing by an amount worth £1.48.
Increased poverty and hardship. Macroeconomic effects aside, the reality is that these cuts will push hundreds of thousands of people into poverty, with millions more seeing their incomes cut. Disabled people face higher living costs due to medical expenses, mobility needs and assistive technologies. Removing or reducing their financial support will force them to cut back on essentials such as food and heating during an already painful cost-of-living crisis. Charities like Mind, Scope and Citizens Advice have already reported a surge in contacts from people worried about the impact of proposed benefits changes, with calls to Mind’s welfare advice line doubling. Beyond questions about their economic rationale, it is clear that these cuts will have a profoundly damaging impact on millions of people.