Millions of disabled and long-term sick claimants could see their benefits slashed by as much as £1,200 a year as Rachel Reeves pushes ahead with major welfare cuts, a leading think tank has warned. With the UK economy under growing pressure, the government is looking to cut around £5 billion from working-age benefits, with disability and incapacity payments in the spotlight. The Institute for Fiscal Studies (IFS) has sounded the alarm, warning that these cuts could mean a 16% reduction in payments, hitting millions of vulnerable people.
The warning comes as the Organisation for Economic Cooperation and Development (OECD) downgraded UK growth forecasts in response to global economic uncertainty, including the impact of Donald Trump’s new trade tariffs. Despite this, the government insists it is not being forced into making benefits cuts to balance the books.
IFS director Paul Johnson, however, says Reeves has “no room for manoeuvre” in her upcoming financial statement, already being dubbed an “emergency Budget.” According to the IFS, if the government follows through on plans to cut £5 billion from disability benefits alone, the impact will be severe, reported the Independent.
“To do it entirely through cutting benefit values would require a 16% real-terms cut – £1,150 per year on average for the 4.3 million people expected to be on them by 2029,” the think tank explained.
The government has backtracked on freezing Personal Independence Payments (PIP) following backlash from within the Labour Party, but the overall drive to reduce the welfare bill is still in full swing. Ministers are particularly concerned about the rising number of working-age adults on sickness and disability benefits. Currently, at 2.8 million, that figure is projected to soar to 4 million by 2030, costing taxpayers an estimated £70 billion a year.
Paul Johnson noted that the UK is already spending £20 billion more on incapacity and disability benefits than it did just five years ago. “We’re spending so much money on disability and incapacity benefits that surely there must be a way of getting that cut back,” he told Times Radio, adding that “public services are so inefficient and their productivity has collapsed so much” that improvements could free up more money.
While the Labour government faces increasing internal opposition over the plans, some think tanks have backed the cuts. The Centre for Social Justice (CSJ), which previously influenced major welfare reforms, supports making benefits more conditional, meaning stricter requirements for claimants.
CSJ policy director Ed Davies said, “Too many people are being written off,” and suggested that extending job-seeking requirements for some claimants could encourage more people back into work. The CSJ estimates that introducing an “into work guarantee” would help 700,000 people find employment, potentially saving £10 billion in benefit payments and generating £3.3 billion in tax receipts—a £13.3 billion boost for the Treasury.
Meanwhile, as Reeves grapples with economic uncertainty at home, the OECD has downgraded the UK’s growth forecast, citing global trade tensions, including Trump’s sweeping tariffs on steel, aluminium, and Chinese imports. The UK’s expected growth rate has now fallen to just 1.4% in 2025 and 1.2% in 2026, raising further concerns about the country’s financial future.
Despite the economic warnings, Reeves insists that the government is focused on creating stability and security, meeting with regulators to discuss cutting red tape and boosting growth.
“A changing world means Britain must change too,” she said, promising a “new era of stability, security, and renewal” to keep working people protected. However, critics, including the Liberal Democrats, argue that Labour’s economic policies are “acting as an anchor on any meaningful growth” and are urging Reeves to change course before it’s too late.
