WIREDGOV

Next week, parliament is set to vote on many of the benefit reforms proposed in the government’s March Green Paper. 

Together these reforms represent a significant shift in support away from health-related benefits and towards unemployment benefits. A new report published by IFS sets out the expected effects of the reforms and provides context for ongoing debates.  

The reforms come against a backdrop of working-age health-related benefit spending rising sharply from £36 billion to £52 billion between 2019–20 and 2024–25 and, without any reform, it is expected to rise to £66 billion by 2029–30 (all in today’s prices). With the reforms, spending is expected to be £61 billion by 2029–30 – £6 billion less than it would have been in the absence of reform, but still £8 billion more than last year.  

The three main reforms included in next week’s bill – tightening eligibility requirements for personal independence payment (PIP), a halving of the health-related element of universal credit (UC) and an increase in the UC standard allowance – are forecast to deliver a net saving of roughly £5 billion in 2029–30. This comprises a £6 billion cut to health-related benefits offset by a £1 billion increase in spending for UC claimants not claiming health-related benefits. But the long-run legacy of the Green Paper reforms as a whole will be greater, eventually representing something closer to an £11 billion per year cut. This saving would still be smaller than the projected £31 billion growth in spending between 2019–20 and 2029–30 absent reform. The £11 billion figure is for England and Wales only and is based on applying the fully rolled-out package of reforms to the expected 2029–30 caseload: if there is continued growth in claimants through the 2030s then both overall spending on health-related benefits and the likely savings from the reforms will be larger.  

These are among the findings of a new report published by IFS which also finds that:

• Existing claimants will not experience an immediate cash reduction in their benefits because of these reforms; the changes primarily affect new claimants and those being reassessed.  
• Overall, 800,000 fewer working-age people are expected to receive a PIP daily living award in 2029–30 due to these reforms. The tighter criteria are set to lead to 430,000 new applicants – who would have received an award without reforms – receiving no award, and 370,000 existing claimants losing out following reassessment. Most of the 800,000 losers will receive £3,850 per year less in PIP. Despite these reforms, official forecasts still suggest that the number of working-age claimants of PIP (or its predecessor) in England and Wales will rise from 3.1 million in 2024–25 to 3.9 million in 2029–30 – an increase of almost a quarter.
• The UC health element cuts are primarily targeted at new claimants. The 2.2 million existing claimants who are expected to still be claiming in 2029–30 are estimated to see a £450 real decline in their support in that year due to the freezing of their health element. But there are also set to be 700,000 new claimants who will typically receive £2,700 a year less than they would have done under the current system.  
• When fully rolled out – which will take many years – the full package of reforms could save the government £11 billion per year, with 3.2 million people – who would receive a health-related benefit under current rules – worse off by an average of £4,000 per year and 5 million individuals – largely without an assessed disability – £410 per year better off on average. 1.2 million health-related benefit claimants will see no change in their benefits. Again these figures are for England and Wales only and are based on applying the reforms to the expected 2029–30 benefits caseload.
• The full package of reforms increases support for healthy people who lose their job but weakens support for those who leave employment due to ill health. On average, a worker who has been continuously employed for the past two years who loses their job (but with no change in health) currently sees an immediate drop in family income of 48%. Under the reformed system, that figure will be 43%. This is primarily because the government plans to introduce more generous time-limited support for workers who have just lost their jobs (branded as a new ‘unemployment insurance’ benefit). However, the average immediate drop in family income following a worker developing a health condition and losing their job will rise, from 23% to 29%.
• An important element of the reforms is that entitlement to the health-related element of UC will no longer be determined by a capacity to work assessment – a feature of the current system that risks discouraging work – but by some of the same criteria as entitlement to PIP. That will mean a single health assessment, but one that is high stakes. Those who just pass it could be entitled to £6,230 more per year in benefits than those who just fail it.

Eduin Latimer, a Senior Research Economist at IFS and an author of the report, said,  

‘While attention focuses on how much these reforms might save in 2029–30 – the year that the Chancellor’s fiscal rules bind – their legacy could be rather more significant. Their effect will steadily grow as more and more claimants are assessed under the new rules, though spending – and the number of claimants – will remain above pre-pandemic levels. The reforms also tilt the protection the system offers – more against job loss, less against disability onset. These reforms have mixed effects on work incentives. The changes may lead to an overall increase in employment, though any boost to employment income is unlikely to come close to offsetting the direct income losses experienced by affected claimants.’ 

The government’s proposed reforms to health-related benefits: incomes, insurance and incentives