An extra £2bn needs to be cut from the welfare bill over the next five years, Treasury documents reveal.
Reforms announced in 2023 under the Tories showed a planned welfare squeeze would save around £3.4bn by 2028-29.
Rachel Reeves has already said she intends to stick to the planned spending regime but Treasury documents have revealed the five-year forecast, now stretching to 2029-30, increases the expected savings to £5.4bn.
The calculation leaves the Chancellor with a much bigger financial hole to plug than previously estimated with no indications yet as to how the savings will be made.
Under Rishi Sunak’s government ministers set out plans to raise the bar for who would be entitled to out of work sickness and incapacity benefits by overhauling the work capability assessment process (WCA).
At the time it was estimated the policy would withdraw welfare eligibility for around 400,000 people who currently receive out of work sickness benefits.
During her Budget statement, Reeves said: “We inherited the last Government’s plans to reform the work capability assessment. We will deliver those savings as part of our fundamental reforms to the health and disability benefits system that my right hon. Friend the Work and Pensions Secretary will bring forward.”
Treasury documents accompanying the Chancellor’s Budget revealed the five-year forecast, now stretching to 2029/30, increases the expected savings to £5.4bn. This is due to a calculated saving of £2bn in the final year of the forecast.
Labour Work and Pensions Secretary Liz Kendall will bring forward new proposals for how these savings will be made, rather than continuing with the benefit crackdown.
The Centre for Social Justice (CSJ) think tank, set up in 2004 by former Tory work and pensions secretary Sir Iain Duncan Smith, has long been calling for the reform of incapacity benefits.
It argues ministers should accelerate plans to devolve employment support and overhaul benefit conditions so claimants can try out work without immediately losing their welfare entitlement, a policy previously backed by Labour when it was in opposition.
The devolution of job centre support has started in the recent “Get Britain Working” white paper, unveiled by Kendall last month, but the CSJ argues spending power should be moved away from Whitehall to the regions for it to be genuinely effective.
The Government has hinted that it would look at increased flexibility for sickness and disability benefits.
Unemployment plans unveiled by Kendall eyed up those signed off work with long-term health conditions and hinted strict benefit assessments could be softened.
But it said a review of sickness and disability benefits would not happen until next year, raising questions as to how the pledged savings would be made.
The Government’s “Get Britain Working Again” white paper has said it would address the 2.8 million people out of work due to long-term sickness through health support and Jobcentre reform.
It made it clear “conditionality”, or benefit sanctions, would still apply to those on benefits and out of work but suggested a more flexible system would be introduced for those currently on sickness or disability welfare.
The CSJ is also calling for the Department of Work and Pensions to bring forward the review of sickness and disability benefits for publication in the early new year rather than Spring, when it is expected.
Ed Davies, policy director, said: “The Government’s fiscal plans are directly on course for a welfare iceberg.
“But there is chance it can avert this by ‘going Dutch’ and radically devolving employment support to get Britain back to work, following the example of the Netherlands where this has helped to cut economic inactivity by three times the rate of the UK.”
A Government spokesperson said: “We’ve been clear the Work Capability Assessment is not working and we will set out reforms to health and disability benefits early in 2025, to ensure the system supports people who can work to remain in or start employment, in a way that is fair and fiscally sustainable.
“The second phase of the Spending Review is now underway and will interrogate every pound of public spending to ensure it represents value for money.”
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