The ‘Benefits Crisis’ in Britain and a Labour Government’s Remedial Cost-Cutting Measures
Britain’s Work and Pensions Secretary Liz Kendall announced to the House of Commons on 18 March 2025, to a mixed reception, the UK Government’s proposals for £5 billion in cuts to annual welfare spending by 2030. Her presentation was followed by the publication of the 79-page ‘Pathways to Work: Reforming Benefits and Support to Get Britain Working Green Paper’, which “sets out plans and proposals to reform health and disability benefits and employment support.”
The rationale for these proposals can be found within this consultative document, according to which “One in every 10 working-age people in Britain is now claiming at least one type of health or disability benefit”, while “One in every eight young people (aged 16-24) isn’t currently in work, education or training.” This makes the UK an “international outlier” in terms of post-pandemic economic recovery, just as total spending on incapacity and disability benefits for working-age adults has risen by £20 billion since the pandemic, disproportionately faster than overall public expenditure. Total spending on disability and health benefits is forecast by the Office for Budget Responsibility (OBR) to rise from £64.7 billion in 2023/24 to £100.7 billion in 2029/30. As of January 2025, as many as 9.3 million working-age adults, aged between 16 and 64, have been deemed economically inactive. A shrinking workforce inevitably means less tax revenues and even higher spending on benefits.
The government’s proposals include scrapping the Work Capability Assessment (WCA) and thereby the binary classification of potential beneficiaries as ‘can or can’t work’; resetting payment rates in Universal Credit (UC); “personalised employment, health and skills support for anyone on out of work benefits with a work limiting health condition or disability who wants it”; and a new non-means tested “Unemployment Insurance” benefit to replace Jobseeker’s Allowance (JSA) and Employment and Support Allowance (ESA). The government expects these measures to improve “people’s experience of, and trust in, the benefits system.”
These proposals will increase the annual UC standard allowance by £775 from 2029/30 onward. Personal Independence Payments (PIPs), which compensate disabled people under state pension age for their living costs, will be retained and not frozen nor means-tested, but entitlement for PIP will be restricted to those with “higher needs” and at the expense of under-22s. PIP assessments will guide the provision of extra financial support for health conditions in persons receiving UC, based on the impact of disability on daily living and not on the capacity to work. People seeking to return to work will not lose their benefits for their efforts under a “right to try” initiative.
The origins of Britain’s bloated and inefficient, but well-meaning, welfare system lie in William Beveridge’s November 1942 report on ‘Social Insurance and Allied Services’, which was implemented by the post-war Labour Government. Initially well received, much of the system has failed to live up to its early promises. Beveridge’s five giants of want, squalor, ignorance, idleness, and disease are far from vanquished, as reflected in persisting poverty and economic inequality, a shortage of affordable housing, a flawed education system which disadvantages both pupils and teachers alike, the proliferation of poor-quality and low-paid jobs, and a dysfunctional NHS struggling to keep up with demand, respectively. Long-term health conditions (both mental and physical), perverse financial incentives to stay out of work, long-term economic inactivity (not working or seeking work), and a culture of welfare dependency among some have stifled economic growth and national wellbeing.
Any planned reforms to Britain’s benefits system require careful handling, given their potential impact on wider society. The poorest and most vulnerable and those genuinely unable to work rightly deserve our support, while those who are able and willing to work but prevented from doing so for various reasons should have their needs better assessed, be trained as appropriate where required, and motivated and supported in their pursuit of meaningful jobs that will eventually benefit the economy. Historical trends, coupled with the vagaries of human behaviour, warn us, however, that all utopian schemes have a finite lifespan, as is now demonstrated by questions over the fairness and financial sustainability of the once generous and now much meaner British benefits system. The relatively small predicted gains from the government’s recently announced benefits cuts are unlikely to prove to be a silver bullet for complex problems that have been allowed by successive governments to fester over decades.
Ashis Banerjee