Labour’s plans to reduce government spending on welfare may end up being far more severe than initially expected—potentially hitting £5 billion or more, according to reports. These proposed cuts are causing growing tension within the government, especially between Chancellor Rachel Reeves and Work and Pensions Secretary Liz Kendall.
Here’s everything you need to know about the possible benefit changes, who may be affected, and what it means for the future of health-related support in the UK.
Why Are Welfare Cuts Back on the Table?
The UK government is under pressure to balance the books as the Treasury faces mounting demands—including calls for a major increase in defence spending. With former U.S. President Donald Trump urging NATO countries to spend 5% of GDP on defence (the UK currently spends just 2.3%), the pressure is growing.
To free up funds, Chancellor Rachel Reeves is exploring cuts to departmental budgets, with the Department for Work and Pensions (DWP) being one of the key targets. Although Labour initially planned to shave £3 billion off the welfare bill, insiders now say cuts could balloon to £5 billion or more—and some proposals even exceed £10 billion.
Liz Kendall Pushes for Investment in Sick and Disabled People
While Reeves looks to reduce welfare costs, DWP Secretary Liz Kendall is advocating for the opposite—more funding. She wants to invest in “back-to-work” programs that help people who are long-term sick or disabled re-enter employment. Her argument: upfront investment will pay off over time by reducing long-term benefit dependency.
Between October and December 2024, 2.7 million people were not working due to long-term illness, including 270,000 young people with mental health conditions, up 26% in one year. Kendall says the current system is broken and isn’t doing enough to support people who want to work.
What Are the Concerns from Disability Charities?
Disability charities are deeply concerned about the direction of Labour’s welfare plans. Scope, a leading UK disability charity, has warned that cuts to disability benefits would be “catastrophic”.
“Life already costs disabled people over £1,000 more per month,” said James Taylor, Scope’s Executive Director.
“Cutting disability benefits risks pushing thousands into poverty.”
Rather than targeting savings, charities are urging the government to co-design reforms with disabled people to ensure fairness, dignity, and support—not just cost reduction.
What Benefits Could Be Affected?
Several major health-related benefits are believed to be under review as part of Labour’s cost-cutting plans:
1. Personal Independence Payment (PIP)
- Helps people with long-term physical or mental health conditions.
- It can be claimed whether in work or not.
- PIP claims rose by 400,000 in the year to August 2024, continuing post-COVID trends.
- Changes to PIP are expected to be outlined in an upcoming DWP Green Paper.
2. Employment and Support Allowance (ESA)
- For people unable to work due to illness or disability.
- Could see tighter eligibility rules under reform.
3. Universal Credit – Limited Capability for Work (LCW) Element
- Supports people who are unfit for work.
- The Work Capability Assessment (WCA), used to determine eligibility, may be overhauled or replaced.
The Green Paper: What’s Coming?
The DWP will soon publish a Green Paper detailing its proposed reforms to health and disability benefits. This will include:
- A potential redesign or removal of the Work Capability Assessment.
- New eligibility rules or assessment methods for benefits like PIP and ESA.
- A new framework aimed at encouraging disabled people to work without losing financial support.
Labour has said it will re-consult on the former Conservative government’s reform plans, which were ruled unlawful by the High Court for lack of proper consultation.
Child Benefit Cap: Another Hot Topic
Labor is also facing criticism for keeping the two-child benefit cap, which limits financial support to families with more than two children. Some internal discussions are exploring a shift to a three-child cap, which would still maintain £2.5 billion in savings while easing the burden slightly.
What Does the Government Say?
A DWP spokesperson responded:
“We will bring forward reforms to health and disability benefits in Spring, so the system is fairer on the taxpayer and helps disabled people and those who are long-term sick into work—while ensuring support for those who need it.”
They added that the department is working closely with disabled people and organizations to ensure their voices shape the reform.
