Welfare bill cuts could lead to 500,000 people losing out by more than £8,000, IFS says
The Institute for Fiscal Studies has published a new report today on the proposals to cut sickness and disability benefits in the UC and Pip bill. Many thinktanks have already published reports on the impact of these measures, but this analysis contains some new material, and is a bit more long term than some of the other ones.
It contains findings that might be welcomed both by supporters of the bill, and its opponents.
Supporters of the bill argue that the current system is unsustainable, and the IFS says that eventually the measures could save £11bn a year.
The long-run legacy of these reforms is far greater. The reform package will still be being rolled out well into the 2030s. Based on 2029–30 claimant numbers, we expect the three main reforms could save £10bn per year when fully rolled out. Adding in the removal of UCHE [universal credit health element] for under-22s, the proposed additional premium for those with the most severe disabilities and the scrapping of the work capability assessment brings the savings to as much as £11bn per year, equivalent to 17% of pre-reform expected health-related working-age benefit expenditure in 2029–30. If the number of applicants for health-related benefits continues to grow past 2029–30, both spending on health-related benefits and the savings from these reforms could be even bigger than these figures.
But bigger-than-expected savings for the taxpayer means bigger-than-expected losses for claimants, and the IFS says in the long term this could lead to 500,000 people losing more than £8,000. That figure is a mix of existing claimants who will find their payments cut, and future claimants who will lose because they will receive less than they would have got under the old system. The IFS says:
These savings – and again, this is after the reforms are fully rolled out – come from 3.2 million claimants of health-related benefits losing an average of £4,000 per year and 5 million individuals, largely without an assessed disability, gaining £410 per year on average. For some, the losses will be much greater: perhaps as many as half a million will see their incomes fall by more than £8,000.
The IFS also says the changes involve a significant redistribution within the welfare system.
The way that this package of reforms is designed means that their full effect will not be felt for many years to come. But when that full effect is in place, the legacy of these policies is a huge change to the shape of benefits in the UK. Support for health conditions, which – unlike unemployment support – has gradually increased in real terms over recent decades (Waters, 2025), will fall significantly. Some people who would have received health-related support under the current system will not, and most people who continue to receive some will receive less. These reforms will go at least some way to slowing the rapid increase in spending on health-related benefits since the pandemic. And it is likely that that will increase employment – perhaps in the low six figures.
In contrast, the support for people without health conditions will be increased. The introduction of an unemployment insurance – a significant contributory benefit against the backdrop of our predominantly means-tested system – will represent a meaningful increase in the protection the system provides against job loss. This is bolstered by the increase in the UC standard allowance.
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