Could disability benefits be the target of Treasury spending cuts?

There are conversations about potential spending cuts in the Treasury - the welfare bill could be part of that. Credit: PA

Three of Rishi Sunak's five pledges relate to the economy and, of them, one is looking hardest of all - leading to some worried conversations across government.

The government's debt pile remains eye-wateringly big. Our national debt is now equivalent to more than 100% of our GDP. Mr Sunak will be worrying that failure to act could limit his ability to offer pre-election tax giveaways, that so many in his party desperately want.

So, what can the government do? Inside the Treasury, there are conversations about potential spending cuts. And it seems inevitable that the welfare bill will be part of that - not least given much of it will uprate next April in line with a lagged (and therefore higher) measure of inflation.

With worries that summer inflation figures could be worse than expected, that is focusing minds on this area of spending, with chancellor Jeremy Hunt and work and pensions secretary, Mel Stride, discussing what can be done.

According to the Office for Budget Responsibility (OBR), every 1% uprating of benefits costs £1.6 billion. And according to the Institute for Fiscal Studies (IFS), some benefits have seen a big increase in claimant numbers. There are now 2.7 million getting Personal Independence Payments (PIP) - 25% more than in April 2019.

That's money to some of the most vulnerable in society - and just keeping payments stable in real terms.

On the other hand, benefits to pensioners are universal - so go to the richest as well - but are also very expensive (and are due to rise from £137 billion to £169 billion).

But will a Conservative government so far behind in the polls really target pensioners?

There is a lot of pressure to do so - by means testing benefits, for example. And there are reports today that the triple lock (that protects the rate pensions rise by, by opting for the highest of inflation, earnings and 2.5%) could be looked at because of concerns about the impact of earnings rising more than expected because of public sector pay awards.

But we know the prime minister is keen to protect pensioners, which is why Treasury sources insist it won’t change. (And if there are any changes I suspect they will be tweaks). 

Meanwhile, there is another pressure - the welfare cap that limits spending on many benefits but not pensions. The OBR said this spring that it was on track to be exceeded by £4.1 billion.

That's why sources in the disability sector tell me they are worried that benefits - and there are concerns that PIP in particular - could be the next target for the government because of the big rise in claimants. 

Another big spend is the work capability assessment, which will be abolished in the future but not yet. Tightening eligibility for out of work and disability benefits would save money.

And would make sense - give the mood music.

Cutting these benefits could well be popular with the right of his party - especially if it appears to make way for tax cuts. But it could also be controversial. In 2016, Iain Duncan Smith resigned as work and pension secretary when David Cameron tried to cut PIP at the same time as protecting benefits for wealthy pensioners.

And it would cause great upset among some charities.

"Robbing disabled people of being able to have basic living standards"

Director of Strategy at the disability charity Scope, James Taylor, told me: “Any proposals to reduce Personal Independence Payment (PIP), make it harder to claim or introducing means testing would be catastrophic for disabled people.

"PIP is designed to help offset the financial penalty of disability. Everyday life costs more when you’re disabled such as needing home adaptations, paying for care costs and higher energy bills."

He highlighted analysis by Scope suggesting life costs £975 more a month, if you are disabled, and you are disproportionately impacted by the cost of living crisis as well.

"Introducing quick fix, headline grabbing ideas to save money on the benefits bill will be devastating, robbing disabled people of being able to have basic living standards," he added.

But the choice facing the government now seems a stark one - particularly given the huge rise in the number of people economically inactive during Covid (a rise the government is desperate to tackle).

Tom Waters, an associate director at the IFS, said: “A number of indicators seem to suggest that population health is getting worse. One consequence of that is that many more people are applying for disability benefits than they did in the past.

"This leaves the government in an unenviable position: they can either clamp down on the disability benefit system, thereby reducing support for many who are unwell, or they can do nothing and see disability spending continue to rise.”

Some in government think the time has come to ease some protections on pensioners to spread the burden of any cost cutting. But that's unlikely to be tempting to a Tory prime minister.

With Rishi Sunak's apparent shift to the right on asylum and climate policies - could benefits be next?

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