Health and disability benefit reforms could boost employment by up to 105,000, but gains dwarfed by poverty-inducing income losses

The Government’s plans to reform health and disability related benefits and increase employment support could boost employment by up to 105,000 by the end of the Parliament. But these welcome gains are not enough to prevent the reforms from pushing hundreds of thousands of families into poverty, according to new Resolution Foundation research published today (Tuesday).

The report notes that the full package of reforms, which also include a boost to the standard rate of Universal Credit (UC) and abolition of reforms to Work Capability Assessment, creates lots of small net winners, but nearly as many large net losers.

The Government’s own assessment says that 3.8 million net cash winners will gain £420 per year on average, while the 3.2 million cash losers miss out on £1,720 on average.

However, the main controversy centres on its finding that the changes will push 250,000 people into poverty, and 700,000 families deeper into poverty.

Ministers have pushed back against this assessment, though, saying the reforms will push people into work rather than poverty – an employment effect that the Office for Budget Responsibility was unable to model due to the last-minute submission of the reforms.

The Foundation’s analysis tests this employment gains assertion on three key parts of the Government’s plans: whether losing PIP creates a positive ‘income effect’ of finding work; whether cuts to the health element of Universal Credit (UC) strengthen work incentives; and, whether increased funding for employment support (worth a cumulative £1.9 billion between 2026-27 and 2029-30) helps more people into work.

The analysis finds that all three aspects of these reforms will lead to more people in work. In total, the Foundation estimates that the employment gains in 2029-30 range from around 60,000 in a worst case scenario, to around 105,000 in a best case scenario.

However, while the reforms should boost employment, the scale of gains will not be sufficient to avoid millions of losers and hundreds of thousands additional people falling into poverty.

The report adds that while the reforms will cause a rise in poverty, there is more Ministers can do to mitigate any negative impacts.

First, the employment support that is due to be ramped at the back end of the Parliament, boosting employment by up to 48,000 in 2029-30, should be brought forward so that more people are helped into work at the point at which they lose benefit income, rather than years later

Second, changes to the PIP eligibility should come with transitional protection, with existing recipients who fail the new, tougher, test given six months’ notice before any cuts to their benefits take effect. This would prevent disabled people being hit by sharp, immediate income losses, and offer them more time to find work if they can. The government should also complete its planned review of the PIP assessment ahead of the cuts coming into place, to ensure the changes are being made to a system that is fit for purpose.

Third, the welcome proposal in the Green Paper that moving into work will not trigger a reassessment of health-related UC should be implemented by 2026-27. Failure to do this will create a strong disincentive for existing claimants to find work.

Greg Thwaites, Research Director at the Resolution Foundation, said:

“The Government’s welfare reforms are hugely controversial, with its own assessment suggesting that the plans will push a quarter of million people into poverty.

“Ministers dispute this and claim that, instead of pushing people into poverty, the reforms will help people into work. But while up to 105,000 people could find work as a result of these reforms, these gains are dwarfed by the income losses that millions of families will face.

“The reforms as they stand will increase poverty, but sensible tweaks can do more to support families through the changes. The Government should front-load employment support to give people more help finding work and offer transitional protections to prevent disabled people from suffering sharp immediate income shocks if they lose eligibility for PIP.”