If there is one word government ministers normally hate to see in the headlines, it is “U-turn”. They think it makes them look weak and wobbly. But many Labour backbenchers, and even some ministers, will welcome suggestions that Liz Kendall, the work and pensions secretary, is backing down on her controversial plan to freeze some benefits for the disabled as she seeks up to £6bn of savings in the welfare budget.
In the face of what is shaping up to be the biggest Labour backbench rebellion since Sir Keir Starmer became prime minister, Ms Kendall seems to have abandoned her plan not to raise the personal independence payment (PIP) for the disabled in line with inflation next year. Her change of heart is welcome, as the proposal would have penalised some of the most vulnerable in society.
As they prepared the ground for changes due to be set out in a green paper on Tuesday, ministers got their language wrong. Talk of providing “incentives” to work is all very well when speaking about people capable of taking a job, but it caused offence because it also seemed to apply to those disabled people incapable of any work. That was never the case, the government now assures us.
In another olive branch to her Labour critics, the work and pensions secretary plans to offer a “right-to-try guarantee” so the sick and disabled can try to work without risking a new assessment and possibly losing their benefits. This fear of going “back to square one” is understandably a major barrier to people taking jobs. It is wrong to portray such claimants as lazy and feckless, as Conservative politicians sometimes do. A Pathways to Work Commission report in Barnsley found that seven in 10 of the “economically inactive” – not in work or looking for it – would take a job if it aligned with their skills, interests, and circumstances; some 40 per cent would do so “now” or “in the near future”.
Ms Kendall is aware of this and is trying to strike the right balance between carrot and stick. She is believed to have won £1bn from the Treasury to improve work incentives and help the jobless back into work. This is the right approach. What the government itself describes as a “broken welfare system” means some people on sickness benefits receive more than £800 a month, twice as much as the basic £393 a month for those on unemployment benefit. So, there is currently little incentive for them to seek work.
A similar switch from a punitive system to one based on encouragement was made successfully in the “New Deal” introduced by Tony Blair’s government in 1997. The Tories enjoyed less success: PIP, which replaced disability living allowance, was supposed to save money, but the bill ballooned. George Osborne, the then Tory chancellor, admitted last week that he abandoned plans to save £4bn by making PIP less generous after the resignation of Sir Iain Duncan Smith as work and pensions secretary.
In theory, Labour ought to be more trusted to reform the benefits system than the Tories. But Sir Keir is struggling to pull off such a “Nixon to China” moment. The scale and pace of the current welfare package is being driven largely by Rachel Reeves’s dire predicament as she tries to stick within her self-imposed fiscal rules in her spring statement on 26 March. Several ministers called for more flexibility over these rules at the cabinet’s meeting last week, but the chancellor is not for turning.
This means Ms Kendall’s reforms, even after the latest U-turn, will still contain some unpalatable medicine. The top rate of PIP, for example, may be reduced and the eligibility criteria tightened. Many Labour MPs think this is not what they were elected for; indeed, there was no mention of it in last year’s Labour manifesto.
Yet even if the public finances were not so stretched, and Ms Reeves’s £9.9bn headroom against her fiscal rules in her Budget last October had not already vanished, a government of any colour would have to tackle the projected rise in the cost of sickness and disability benefits from £64.7bn in 2023-24 (2.4 per cent of GDP) to £100.7bn in 2029-30 (3 per cent of GDP). The number of people on PIP is set to double from 2 million to 4.3 million in this decade.
These numbers are unsustainable. They would be even in good economic times, let alone given today’s pressures to spend more on health, social care, and defence at a time when economic growth is sluggish.
The proposed welfare changes must be handled with care, and the new system must be perceived as fair. But the government is right to bite the bullet.
