A response to the Conservatives’ proposals to reduce growth in the health-related benefits bill

The Conservatives have announced that they would implement a package of reforms aimed at reducing growth in the number of people receiving health-related benefits.They claim this would reduce spending by £12 billion a year by the final year of the next Parliament.

The numbers receiving these benefits – and the amount spent on them – have been growing rapidly since the pandemic.¹  In real terms, annual total spending on benefits to support disabled people and those with health conditions has risen by £19.9 billion since 2019 (from £49.0 billion in 2019–20 to £69.0 billion in 2024–25) with a further £10.6 billion real-terms rise forecast by 2028–29 (to £79.6 billion). So a focus on this issue is certainly appropriate.

A £12 billion cut by the end of the next parliament would, therefore, offset the forecast growth in spending (though still leave it higher than it was in 2023-24). But it is far from clear that the measures that the Conservatives have said they will implement will reduce spending by that amount relative to the Budget forecast. This is because, as the Conservatives acknowledge, many of the policies that they plan to set out in their manifesto were previously announced by the government and have therefore already been incorporated by the Office for Budget Responsibility (OBR) into the Budget forecasts – including the above forecasts of benefit spending. Of course including them in their manifesto may be appropriate – for example it could make them easier to legislate.

The measures proposed by the Conservatives include:

• reform to the Work Capability Assessment;
• an overhaul of the system of ‘fit notes’;
• expanding provision of treatments, including talking therapies, for those with mental health conditions;
• increased sanctions for those who have been out-of-work and on benefits for more than a year.

The first of these was consulted on in 2023 and scored by the OBR as a £1.4 billion a year saving. The other three are likely to make relatively small differences to the welfare bill. And, again, any savings from these policies are already baked into the existing welfare spend forecasts. The Conservatives say they want to reduce welfare spending by £12 billion “compared to current forecasts”.

So where might a £12 billion saving come from? The only other announcement where a sizeable reduction in spending seems at least possible is the pledge to “reform our disability benefits to halt the unsustainable rise in claims, while ensuring the right support is being targeted at those who need it most”. Their intended focus is on reducing claims related to mental health (which account for roughly 4 in 10 disability benefit claims, and a similar share of the post-pandemic increase). The government is already consulting on a reform along these lines, but since it is not yet a concrete policy it is appropriately not yet reflected in the latest official forecasts. At the time of the last election there were 2.3 million working-age individuals receiving disability benefits (Personal Independence Payment, PIP, or its predecessor), payments that are intended to provide financial support to individuals with health conditions that impose additional financial costs. This is forecast to reach 3.6 million this year, and to climb to 4.6 million in 2028–29.²  Rising numbers of PIP claimants are behind much of the forecast increase in total health-related welfare spending, and so one can see why the government might focus on this benefit.

However, a reform to PIP that gets a long way towards £12 billion looks extremely challenging for several reasons:

• Spending on PIP and its predecessor in England and Wales is forecast to be £30 billion in 2028–29 (£28 billion in today’s prices). Cutting anything near £12 billion would be a huge proportion of the existing bill, meaning a lot of people losing significant sums.
• The lesson from previous reforms is that getting the disability benefit bill down is easier said than done. As the OBR concluded in 2019: ‘The cost of the… disability benefits system has risen significantly over time, and both major reforms to the system – the introduction of DLA [Disability Living Allowance] in 1992 and of PIP in 2013 – have ended up costing much more than expected. With DLA, that involved a deliberate expansion in coverage yielding a greater increase in the caseload and cost than had been predicted. With PIP, a reform intended to reduce spending has actually increased it.’
• Rather than rapidly reassessing all existing claimants, reforms like these often apply only to new claims and end-of-award reassessments, and they should certainly be carefully piloted before being rolled out. This means that any reductions in benefit spending can often take quite a while to realise. In this context it might be worth noting that just before the May 2015 general election the Conservative Party Manifesto committed to delivering £12 billion a year in cuts to the working-age benefits bill by 2017–18. A few weeks later in the July 2015 Budget they did indeed set out measures that were costed as reducing spending by £12 billion a year, but only by the fourth year of the Parliament (2019–20).

Tom Waters, Associate Director at the Institute for Fiscal Studies said:

“The number of people receiving financial support from the government for a health-related benefit has increased sharply since the pandemic and is forecast to continue growing. This is one of the big drivers of the large increase in public spending since 2019 and into the next parliament. So it is understandable that whoever is in office after the election should want to take a careful look at this. And reducing the scope of the state is one possible response to the broader public finance challenges that we face.

Most of the measures that the Conservatives have announced are confirming that they would go ahead with proposals that are existing government policy. Including these in their manifesto can make them easier to legislate. But they cannot be expected to deliver reductions in spending relative to the latest forecasts, since those forecasts are already predicated on most of these policies happening. The most substantial proposal that is not already baked into the forecast is one intended to reduce the numbers who are able to receive disability benefits on the basis of a mental health condition. Cuts are certainly possible. But history suggests that reductions in spending are often much harder to realise than is claimed. Delivering an additional £12 billion saving from this set of measures relative to what was forecast in the March Budget looks difficult in the extreme. That said, even if it was achieved, it would still only leave spending around its current level.”