Labour’s initial plan to reform the welfare system was a rushed attempt to make billions of pounds in cuts to a rapidly increasing bill, in order to help the chancellor meet her self-imposed guidelines on government borrowing.
However, this recent reversal raises significant concerns about the stability and credibility of constantly tweaking financial plans every six months to meet budget targets that are frequently changing due to various factors, such as the cost of borrowing which the government has no control over.
The latest agreement appears to undo more than half of the intended £5 billion in savings from the welfare reforms by 2029-30.
The proposed reduction in eligibility for personal independent payment (Pip) for those with disabilities was expected to generate the majority of this saving, £4.5 billion.
However, the changes will now only apply to new claimants from November 2026, sparing 370,000 current claimants out of the 800,000 identified in the DWP impact assessment.
Another change announced in March, which will now only affect new claimants, involves the assessment process for Pip applicants.
Pip assessments include questions about tasks such as food preparation, personal hygiene, and getting dressed. Each task is scored from zero (no difficulty) to 12 (most severe).
For example, needing assistance to wash your hair or body below the waist would receive two points, while needing help to wash between the shoulders and waist would be awarded four points.
Under the new system, individuals will need to score at least four points for one activity, rather than qualifying for support across a wide range of tasks.
Labour leader Meg Hillier and government ministers have emphasized that the new four-point threshold will be a collaborative effort, developed in partnership with disability charities. As a result, it is still unclear how the scoring will be applied and suggests that the changes may not save as much money as initially anticipated.
There will also be a ripple effect on Carer’s Allowance, which is estimated to cost around £2 billion.
The original changes to universal credit – freezing the health element until 2029-30 and halving it for new claimants from next April – were projected to generate £3 billion in 2029-30.
However, now 2.25 million current recipients will receive an increase in line with inflation, and the most severe cases out of 730,000 new claimants will no longer see their benefits halved.
This is estimated to cost several hundred million, potentially up to £1 billion.
In addition, the government has committed to bringing forward investments in employment, health, and skills support to provide more immediate assistance to those on health benefits and help them return to work. This was initially scheduled to take effect next year and reach its full £1 billion level by 2029. This helps to present the package as a reform rather than just cost-cutting measures.
There are many variables at play here, and it should be noted that the original cost estimates were highly uncertain and based on assumptions about changes in behavior. For instance, the number of claimants who would successfully argue that they are now above the new four-point threshold.
However, it is likely that the overall cost of this sudden deal is more than half of the intended £5 billion in savings – a £2.5-3 billion agreement. The government’s financial watchdog, the Office for Budget Responsibility, will reveal the exact figures at the Budget.
Additionally, this is in addition to the £1.25 billion cost of reversing the winter fuel payment, which would have to be offset by higher taxes or cuts in other areas, given the chancellor’s “non-negotiable” borrowing rules.