There is a “moral case” for cutting the welfare bill, a Cabinet minister said as Rachel Reeves seeks to slash public spending by billions of pounds in her Spring Statement.
The Chancellor will deliver her statement on March 26 in response to the latest forecasts from the Budget watchdog, with increased borrowing costs and weak economic growth likely to require spending cuts in order to meet her commitments on managing the public finances.
Curbing the cost of welfare and a drive for greater efficiency across Whitehall are expected to contribute the bulk of the savings.
The Treasury is putting its proposals to the Office for Budget Responsibility on Wednesday as part of the watchdog’s forecast process, the BBC reported.
A leaked early draft of the forecast indicates the watchdog is cutting its forecast for economic growth and the cost of Government borrowing will have been affected by the turbulence in the bond markets in January.
At the time of the Budget in October, the watchdog said Ms Reeves had £9.9 billion of headroom against her self-imposed rule to fund day-to-day spending through tax revenues rather than extra borrowing.
A Government insider told the BBC: “Clearly the world has changed a lot since the autumn Budget. People are watching that change happen before their eyes.
“The Office for Budget Responsibility will reflect that changing world in its forecasts later this month and a changing world will be a core feature of the Chancellor’s response later this month.”
Justice Secretary Shabana Mahmood defended efforts to reduce the amount spent on welfare.
She said: “We know that there are many people who are currently receiving state support for being out of work who want to be in work. We know that we have too many of our young people currently out of work, not in education, employment or training.”
She told BBC Radio 4’s Today programme: “There is a moral case here for making sure that people who can work are able to work and there’s a practical point here as well, because our current situation is unsustainable.”
Work and Pensions Secretary Liz Kendall, who is expected to set out reforms within weeks, told Cabinet colleagues on Tuesday there are 2.8 million people not in work due to ill-health and one in eight young people not in education, training or employment.
She told them this is “holding back the economy” and is “bad for people’s wellbeing and health”, with the sickness and disability bill for working-age people rising by £20 billion since the pandemic and forecast to hit £70 billion over the next five years.
A Health and Disability Green Paper will set out plans to supports those who can work back into jobs, rather than write them off, she said.
Cabinet Office minister Pat McFadden and Health Secretary Wes Streeting are also expected to set out an efficiency drive, which will reduce the number of civil servants and cut costs, in the run-up to the statement, the BBC said.
A source told the broadcaster: “Headroom or no headroom, the Chancellor is determined to push through the change we need to make Britain more secure and prosperous, with the whole Government making that argument in the coming weeks.”
Asked if Sir Keir Starmer agrees there is a “moral case” for cutting the welfare budget, the Prime Minister’s official spokesman said: “Economic growth is the Government’s number one priority. Growth is what funds our public services and enables investment in our hospitals and schools and, most importantly, raising living standards for everyone.
“However, one of the huge blockages to growth is the broken welfare system, which we inherited, which is draining our workforce by pushing people out of work and consigning them to a life dependent on welfare instead.”
The welfare system is “failing young people, failing people with health conditions and disabilities and denying people the opportunities and support they need”, the spokesman said.
Economist Paul Johnson said cuts to welfare will need to be “radical” to persuade the OBR they will generate enough savings.
Spending on health-related benefits is projected to increase so the potential savings are “quite large”, the IFS director told BBC Radio 4’s World At One.
“But you’re only going to achieve significant or noticeable savings, you’re only going to persuade the OBR, if you’re going to do something really quite radical.
“Like, for example, simply making people with certain types of conditions or certain levels of illness not eligible for these benefits. Certainly tinkering with them is not going to do the job.”
