Lana Hempsall: The rise of the welfare state – and Labour’s refusal to rein it in

Lana Hempsall is an entrepreneur and business coach, Conservative councillor, the CPF National Discussion Lead for Transport, and the co-founder and director of Conservatives in Energy. 

Labour are in a serious bind over welfare reform.

They recognise the current system, costing £300bn, is unsustainable. They even announce bold sounding new plans and initiatives. But they have been stymied by their own backbenchers who oppose even the most modest of measures.

In June, the then Work and Pensions Secretary, Liz Kendall, attempted to push through modest changes that would have saved £4.8 billion from a £100 billion disability budget. The plans were watered down by the Government and then almost abandoned in their entirety. Worse still, they announced a new formal review – led by one of the very Ministers who had been in the lead of the reforms now junked – that will not even report back for another twelve months.

The reason reform is important is two-fold. First, because the current system will – if left unchecked – bankrupt Britain’s finances and has already led to hundreds of thousands of people who could work being stuck on benefits. Second, the Chancellor desperately needs to find savings from somewhere in Government to reduce the ever growing deficit – and welfare is one of the very few areas where savings are possible.

So, with hostility from Labour’s own Parliamentarians and opposition from a host of disabled campaign groups, what is to be done?

Step one was appointing Pat McFadden to take charge as Secretary of State for the Department. His first comments were that reform “must happen.” Yet he also announced that disability benefits would remain untouched until the Stephen Timms Review is completed in late 2026. That means Personal Independence Payments (PIP), the fastest-growing part of the system, will be off limits for the moment. If any of the Timms proposals require legislation, that will mean those reforms will happen at the back end of this Parliament or, more likely, until after the next General Election.

The scale of the challenge makes this delay all the more damaging. Britain spends more than £300 billion on welfare each year – more than on health, defence and education combined. The Office for Budget Responsibility forecasts that the health and disability bill alone will reach £100 billion by 2030. The total welfare budget is expected to hit £380 billion by the end of the decade. We should all hope that the new Secretary of State can succeed.

Encouragingly, he has laid out already why reform is necessary. He condemned the current system as being “unhealthy,” arguing that it locks too many people into dependency and pushes up costs by failing to help those who could work. And he added that nothing is being ruled out.

But what kind of changes could be possible? He has given some heavy hints that may indicate what could be on the political horizon. He committed himself to “reshaping” PIP, questioning whether mild mental health conditions should qualify for long-term disability payments. With more than 360,000 under-25s now on PIP, most citing anxiety or depression, finding ways to redirect to receive NHS treatment instead of extra benefits is an obvious area for reform.

The logic here is clear, better care should help people back into work rather than keep them on benefits indefinitely. One hazard of such an approach is that the NHS may not be able to provide the support required.

The same blend of intent and hazard runs through his other priorities. He wants stronger employment support, more coaches and programmes for those long written off as incapable of work. But our record is poor: only one in ten people on sickness benefits who say they want to work receive any help. Expanding support could change that, but only if it avoids the trap of becoming another tick-box exercise.

On Universal Credit, McFadden has kept his options open, even hinting at ending health-related payments for all under-22s. Why stop at 22 though – with proper safeguards in place ensuring those who truly need support have access to it – widening the removal of this extra payment to all those under 25 or even 30 would deliver significant savings.

With nearly half of Universal Credit claimants having no work requirements at all, the Department could ensure that every claimant had to seek work. Again, a reform that would encourage many more claimants to seek work and thereby reduce the cost significantly.

Such changes would be an important change, assuming that, this time, he can use the Chief Whip to push them through Parliament. They are also a signal that, after the Timms Review is finished, other changes could follow. In particular, what is crystal clear is that those with more minor mental health conditions should not be able to claim PIP payments at all – and it is mental health that is the primary driver of the 3,000 new claimants every day. Reducing that number is also the only area where major financial savings could be achieved.

McFadden is right about the fundamentals. The system is unhealthy, for claimants written off too easily, for the economy that loses their contribution, and for the taxpayers forced to carry the burden. Will he be able to steer through the changes that will address these fundamental issues or be blocked by his own backbenchers? The next few months will show his reforming mettle.