Welfare concessions will prevent current claimants from suffering income losses – at a cost of up to £3.2 billion by the end of the Parliament

The changes to the Welfare Bill set out today will create a two-tier system to prevent existing claimants from suffering income losses as a result of changes to Universal Credit (UC) and Personal Independent Payments (PIP). These changes are welcome, but could cost between £2.6 billion and £3.2 billion a year in 2029-30 – making it even tougher for the Chancellor to meet her fiscal rules this Autumn, the Resolution Foundation said today (Friday).

The key change is that current PIP claimants will no longer lose support, even if they do not qualify for support under the new criteria (scoring at least four points in any single heading for the daily living component of the PIP test). Around 370,000 claimants are expected to have £4,500 protected, on average. This protection also has knock-on effects for their carers, who will continue to receive Carers’ Allowance. Taken together, this protection comes at a cost of £2.1 billion in 2029-30.

The Government has said existing recipients of the health element of UC will see support protected in real terms. This will insulate 2.25 million people from a loss of between £250 and £500 per year, and will cost between £540 million and £1.1 billion, depending on how it is implemented.

Overall, the changes announced today will cost between £2.6 billion and £3.2 billion in 2029-30 – reducing the gross savings from the original proposals from £8.1 billion to as little as £4.9 billion.

The total net savings, when coupled with increases in the generosity of the wider welfare system, were originally expected to be £4.8 billion, but this is now reduced by over half. The full savings will pass through eventually as existing claimants move out of the system, but this will be beyond the Office for Budget Responsibility’s forecast period.

These are estimates and the final costs will depend both on the details of the policy proposals and the assumed behavioural response, which could be different for new and existing claimants. Having announced this policy, the Government should provide its own estimates of the costs as soon as possible, says the Foundation.

Attention is now likely to turn to how these latest policy changes will be funded. The Foundation notes that extending the freeze in personal tax threshold by one year will save £4 billion a year, though further consolidation is likely to be needed in the Budget this Autumn.

Ruth Curtice, Chief Executive of the Resolution Foundation, said:

“The concessions today mean that over two million people currently receiving support due to ill-health or a disability will no longer suffer income losses from forthcoming welfare changes.

“This is a welcome change that will reassure vulnerable claimants, as is the commitment to bringing forward employment support.

“The concessions aren’t cheap, costing as much as £3 billion and more than halving the medium-term savings from the overall set of reforms announced just three months ago. This adds to the already mounting pressure to deliver fresh consolidation in the Budget this Autumn.”