Emma Revell: As Labour ‘cut welfare’ remember the welfare bill is going up, three times faster than growth

Emma Revell is External Affairs Director at the Centre for Policy Studies.

One of the most controversial elements of the Spring Statement, certainly on the Labour benches were the welfare reforms outlined by Liz Kendall.

Yet even after her changes are brought in, health-related benefits are projected to rise three times faster than the economy’s growth rate over the remainder of this decade,

You’d think, given an statistic like that, policymakers would be throwing everything they possibly had at the problem. How can it be the case that even with the changes already announced, the cost of health-related welfare spending is set to balloon to £97.7bn in 2029/30, up from £66.3bn in 2023/24? To put that into perspective, this would otherwise be enough to raise defence spending to 2.9% of GDP, or cut Employer’s National Insurance by up to three percentage points.

Kendall deserves some praise for sticking her head about the parapet and even beginning a conversation about welfare reform. She has correctly identified that the welfare system itself is to blame for much of the sky-rocketting bill because of its “perverse financial incentives… which actively encourage people into welfare dependency”.

But given how much consternation her relatively minor reforms have already triggered among her backbench colleagues, there is a real concern that Labour will lose their nerve and refuse to go further. My colleagues at the Centre for Policy Studies have already highlighted four key areas neglected by the announcements so far.

First, Labour is running down an up escalator when it comes to trying to reform Personal Independence payments. They claim the reforms announced will cut the number of people claiming PIP by 400,000 by 2029/30. But projections by the Office for Budget Responsibility suggest there will be 4.65 million claimants by that point – a 25% increase on the levels today.

True, the PIP assessments are to be reformed – but as of yet, we don’t know how. When details do emerge, it is critical they contain plans to address rising mental health claims which account for a significant chunk of claimants, and the growth of which seems unlikely to be entirely down to legitimate need.

Secondly, there has been a similarly large increase in the number of children claiming Disability Living Allowance, driven entirely by learning disabilities, behavioural disorders and hyperkinetic syndrome. Children on DLA often transition straight onto PIP as adults. DWP figures suggest over 1 million children will be receiving DLA by 2029/30, with the costs set to almost double.

Any reform to health-related benefits for children, especially those with learning disabilities, will be highly contentious. In many ways understandably so, with parents up and down the county often struggling with completely inadequate provision for their disabled children. But with costs increasing at a higher rate than either working age or pensioner benefits, and a suspicion that sharp-elbowed parents are abusing the system in order to secure preferential treatment for their kids in school (including extraordinarily expensive taxi services), the public finances cannot afford for Labour to bury their heads in the sand.

Thirdly, too many young people are being left out of the Government’s current plans. Restricting access to the health element of Universal Credit for those aged 18-21 and replacing it with the Youth Guarantee – additional targeted support to find work or education – is a welcome step. But there is no reason this couldn’t be expanded to the under 25s or under 30s.

Unemployment in the early years of adulthood has the most significant impact on a person’s lifetime earnings and our decades-long productivity crisis will only be worsened if we condemn young people to a life without meaningful work. Indeed, there is even an argument that we should abolish or consolidate the health element of UC altogether, and start paying people based on their actual individual needs rather than according to what bureaucratic category they fall into.

Finally, Labour shelved plans developed by the previous Conservative government to reform the Work Capability Assessment; according to the DWP and OBR, these plans could have saved £1.6 billion and led to 400,000 people fewer being on the health element of Universal Credit. This seems bizarre: instead of adopting a set of costed and thought-through policies that would have saved money and cut inactivity, Labour ended up scrabbling to make last-minute welfare savings in order to bring its budgets into compliance with the OBR’s thresholds.

Labour have committed to reforms of the WCA of their own. But won’t reveal details for another three years. Rather than implement the Tories’ costed, thought-through and well-prepared proposals, the government has decided to delay, costing the taxpayer money and missing opportunities to help people back into work.

Worse still, while the DWP may deserve some credit for at least chipping away at our welfare and inactivity problem, other parts of government are pulling in the opposite direction.

Rachel Reeves’ own Budget back in October triggered a collapse in business confidence as she hammered the private sector. A massive hike in Employer’s National Insurance is, despite what the Treasury claims, a tax on jobs, increasing the cost of employing workers.

As my colleagues pointed out back in January, this huge tax rise – in addition to the increase in the minimum wage – means that in 2025, it will cost a business £2,367 more to employ a full-time worker on the minimum wage than in 2024. The obvious conclusion is that businesses will employ fewer of them.

Meanwhile, Angela Rayner and Jonathan Reynolds are pushing ahead with the Employment Rights Bill. No matter how much fluffy language they dress it up in, the fact remains that as currently proposed, the changes are causing deep concern across various sectors of the economy.

Last month the CBI said ‘[t]here is a real risk that this legislation imposes a thicket of regulation across all businesses which prevents them from creating the high-quality, secure jobs which we all want to achieve.’ This sentiment was echoed by UKHospitality, who issued a press release saying ‘there much unknown about how this legislation will work in practice, a lack of detail on several key issues and the scale of the cost these changes will bring’. The British Retail Consortium put it simply – ‘the current regulations risk punishing responsible businesses who provide employment’.

Not the sort of ringing endorsements you would be looking for as your government tried to support millions into work. And of course, as the Centre for Policy Studies’ director Robert Colvile has pointed out, the Government has not even got an accurate estimate of its costs – despite promising to slash compliance costs for businesses, it is not even stopping with its flagship measure to work out what they actually are. We do know, however, that they will be in the billions.

Britain needs big, bold reforms to the entire welfare system – root and branch. That will involve some honest and difficult conversations with the country, not just the parliamentary Labour Party.

Nothing we’ve seen from this government so far convinces me that they have the stomach for it.