It could be seen as a vicious circle.
A significant portion of the working age population, specifically those between the ages of 16 and 64, are currently unemployed. The most common reasons for this include caring responsibilities and ill health.
Despite having a four-year mandate and a strong majority, Labour did not invest in a long-term plan to help those with illnesses return to work, even on a part-time basis. While this may have required upfront costs, it could have resulted in significant savings in the future.
Instead, in an effort to avoid a repeat of a previous mini-budget, Labour focused on making quick and large savings. However, this ultimately caused more problems and led to a major U-turn by the government in order to avoid a rebellion from Labour members.
This raises concerns not only about the government’s day-to-day management, but also about their overall strategy to improve the country.
The government had stated that their changes to welfare, announced in a Green Paper in March, were aimed at getting people back to work. The majority of the planned savings came from stricter eligibility requirements for Personal Independence Payments (Pip), which are given to support individuals with disabilities regardless of their employment status.
However, independent experts questioned whether more of these savings should have been used to help individuals with health conditions transition back into the workforce, potentially through employer subsidies. This could have been beneficial for both the individuals and the economy.
Labour members who rebelled against the cuts argued that they were only being made to fill a budget gap, rather than being part of a larger welfare reform plan. This was due to the Chancellor’s self-imposed borrowing rules, which were not being met due to increased borrowing costs, such as those caused by US President Donald Trump’s tariffs.
In order to meet these rules, Chancellor Rachel Reeves announced further welfare cuts on the day of the Spring Statement. However, the Office for Budget Responsibility (OBR) stated that these cuts would not generate enough money, leading to even more cuts being announced.
Former Conservative Welfare Secretary Iain Duncan Smith, who resigned almost ten years ago over a similar plan to cut disability benefits, believes that these cuts should have been part of a larger process to focus resources on those most in need. He argues that simply cutting the welfare budget without reform is not effective.
The main issue is that the current welfare system is seen as too rigid, pushing individuals towards declaring themselves completely unfit for work and becoming completely dependent on welfare. This is seen as the main reason for the increase in health-related welfare claims, which has been exacerbated by the pandemic but began a decade ago.
The pandemic also led to a rise in claims for mental health-related issues, as many were approved without face-to-face meetings. One former minister believes that the system has broken down and that people are learning to manipulate the Pip questionnaire to receive benefits.
According to this former minister, the UK is too focused on giving individuals cash payments rather than providing them with necessary equipment, such as wheelchairs. He believes that for most mental health issues, in-kind support, such as therapy, would be more beneficial.
However, some disability campaigners argue that offering vouchers instead of cash payments takes away individuals’ autonomy and is dangerous. As a result of these concerns, the government has compromised on their planned cuts to Pip payments, only applying them to new claimants from November next year.
Labour MP and chair of the Commons Treasury Committee Dame Meg Hillier, along with other rebels, have also pointed out that the new eligibility requirements for Pip will be developed in collaboration with disability charities, potentially allowing more individuals to retain their benefits.
The government also planned to freeze the higher rate of universal credit for existing health-related claimants, but this will now increase in line with inflation. For future claimants, the most severe cases will be exempt from a planned halving of the payments.
However, these changes do not take into account the £1 billion that the government has pulled forward to help individuals with disabilities and long-term health conditions find work. This was originally planned for 2029, but has been brought forward. While this does support Labour’s argument that the changes are about reform rather than cost-cutting, it is still not the radical reform needed to address the growing social, fiscal, and economic crisis.
The Keep Britain Working review, led by former John Lewis boss Sir Charlie Mayfield, has not yet been reported. This review was commissioned by the government to examine the role of employers in health and disability. In the Netherlands, a similar challenge was addressed two decades ago by making employers responsible for the costs of helping individuals back into work for the first two years.
In the UK, businesses are concerned about the costs of taxes, wages, and employment rights policies. There is also a question of whether there are enough jobs available to support individuals with illnesses returning to work.
The Institute for Fiscal Studies and Resolution Foundation estimate that the government’s U-turn could cost £3 billion, meaning that Chancellor Rachel Reeves may have to increase taxes or make cuts in other areas to meet her self-imposed spending rules. Extending the freeze on income tax thresholds is a possible solution, but the Treasury may be hoping for sustained economic growth and lower borrowing costs to help with the OBR’s calculations.
It is worth noting that the reason for all these changes was an attempt to bridge a budget gap in March, which has now resulted in a vicious cycle of cuts and compromises.