What are the key benefit changes in Labour’s welfare overhaul? From PIP to Universal Credit

Labour revealed the extent of its welfare reforms on Tuesday as work and pensions secretary Liz Kendall delivered an announcement in Commons on the plans.

Taking to the stand, the minister said the welfare system is “failing the very people it is supposed to help and holding our country back”.

“This government is ambitious for our people and our country and we believe unleashing the talents of the British people is the key to our future success,” she added.

Ms Kendall went on to announce a sweeping number of reforms, with savings amounting to £5 billion by 2029/30 – the end of this parliamentary term.

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Responding to the announcement, a coalition of over 100 charities has criticised the changes, including the Scope, Macmillan and Parkinson’s UK.

Charles Gillies, senior policy officer at the MS Society and Policy Co-Chair at the Disability Benefits Consortium, said: “These immoral and devastating benefits cuts will push more disabled people into poverty, and worsen people’s health.

“The harmful changes to PIP will make it even harder for disabled people – including many with MS – to manage the overwhelming additional costs of their condition, from wheelchairs to visits from carers. And any targeted cuts to disabled people on Universal Credit (UC) and Employment and Support Allowance (ESA) will largely hit those who are unable to work and rely on these benefits to survive. We are united in urging the government to abandon these cruel cuts.”

Here are the key changes Labour announced:

Ms Kendall confirmed the eligibility for the Personal Independence Payment (PIP) will be effectively tightened, resulting in fewer claimants being eligible for the benefit. While this won’t affect those who currently have an entitlement, it will affect them when it comes to reapplying or being reassessed after the new rules come into force.

At the moment, PIP is paid based on two parts – daily living and mobility – at a higher or lower rate dependent on severity. This means there are four possible weekly payment levels ranging from £28.70 to £184.30.

The new rules see the criteria to qualify for these payment rates changed. Assessors currently ask applicants to carry out a range of activities and measure these against a set list of “descriptors” of what they can and can’t do. Labour has increased the number of points applicants need to score against these descriptors to be found eligible for the benefit.

Have you been affected by any of these changes? Get in touch: albert.toth@independent.co.uk

Currently, over a third of people entitled to PIP are diagnosed with mental health disorders; and Health Secretary Wes Streeting has warned that there may be an “overdiagnosis” problem.

Ms Kendall has confirmed Labour will scrap the work capability assessment in 2028. This is the capability assessment used to determine a person’s ability to participate in the workforce. It decides what work-related activities they must carry out and if they are entitled to any extra support in the form of the health-related element of UC.

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These claimants will either be found to have ‘limited capability for work’ (LCW), meaning they may not be able to look for work now but are expected to in the future, or ‘limited capability for work and work-related activity’ (LCWRA), meaning they are not expected to be able to work soon, and do not need to prepare for employment.

The assessment to determine this will now instead be folded into the one that is used to assess eligibility for PIP, creating one unified health assessment and benefit. However, the health elements of UC and PIP are distinct benefits with different purposes.

Labour has confirmed that this single assessment will still be based on the impact of disability on daily living, as is the case with PIP, and not on capacity to work, as is the case with the health element of UC. The Green Paper explains: “This will de-couple access to the health element in UC from work status, so people can be confident that the act of taking steps towards and into employment will not put their benefit entitlement at risk.”

Labour said it will “rebalance payment levels” in Universal Credit to “promote work and address perverse incentives” in the system, beginning in April 2026.

To do this, an across-the-board increase to the standard UC allowance for new and existing claims was announced. Ms Kendall noted this marks the first time the payment has received an above-inflation boost. This will be a boost of £7 a week, to £98 a week.

However, this will be accompanied by freezes to the health element rates of UC. For those already receiving this, it will be frozen at £97 a week until 2029/30. For new claims, this rate will be reduced to £50 a week.

In real terms, this will mark a significant cut to the benefit. However, this will be offset in part by the standard rate allowance, while everyone claiming the health element also receives.

And although UC will be changing for millions of claimants, it will actually be boosted for “the most severe, life-long health conditions”, Labour has confirmed.

Another unexpected announcement came in the form of an unprecedented age restriction on UC health top-ups.

The government will consult on an increase to the minimum age for those who are eligible for extra UC payments, if their health condition or disability limits their ability to work.

The consultation will suggest that only people aged over 22 will be able to apply for this “health top-up”; in a move to encourage young people back into work.

Ms Kendall said that the measure was intended to prevent under-22s from missing out on employment, in tandem with Labour’s focus on “breaking down the barriers to opportunity” for young people.

The savings from this will be “reinvested into work support and training opportunities” for young people, according to the paper

Over 106,000 young people aged 18 to 21 years old were claiming the health element of UC in December, according to most recent government data.

The age at which children are transitioning to PIP from the Disability Living Allowance is also increasing from 16 to 18 years old.

Labour will also introduce a new benefit called ‘Unemployment Insurance’ through the reform of contributory working-age benefits. It will replace Jobseeker’s Allowance and ESA (both of which were already being replaced by UC) with a new single entitlement.

It will be “time-limited”, said Labour, designed to provide “stronger income protection during periods of unemployment for those with a recent work record, while revitalising the ‘something-for-something’ contributory principle in the working-age system”.

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It will be non-means-tested, and the amount it pays will likely be decided by a person’s previous national insurance contributions, similar to how the state pension works now.

Ms Kendall has confirmed that the DWP will introduce a “right to try” policy which will see disabled benefit claimants able to retain their entitlement should they undertake employment that does not become long-term.

It is understood this was a late addition to the plans, implemented to quell rising backbench anger over the massive cuts to welfare spending. The policy is designed to incentivise people to seek employment without fearing that their benefit entitlement will be stripped if the job does not pan out.

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This announcement comes shortly after polling by the DWP found 44 per cent of disabled people and those with a health condition don’t trust the department to help them find work. At the time, Ms Kendall suggested that the solution to this was about providing the “right support”.

The DWP will also begin a drive to boost the number of work capability reassessments for the health element of UC. Ms Kendall said Labour will “turn reassessments back on at scale” after Conservative mismanagement during the Covid pandemic.

People with no prospect of improvement in health or a return to work will now see their incomes protected through an additional premium. They will also no longer need to be reassessed in the future.

The government is committing an additional £1 billion a year to support employment, health and skills, to make the system more “pro-work”.

Disabled and unwell people will have access to one-to-one support under the government’s new plans which would focus on individual goals, not solely tailored towards employment but also skills training.

This will include more personalised employment support for those who receive out-of-work benefits and are limited by health conditions, with a focus on early intervention.

There is little information as to how this funding will be specifically divided between health and employment, but will go alongside the government’s increased investment into the health and social sector and existing employment support.

The £1 billion per year in additional funding will be met by the end of the decade.

Today’s sweeping overhaul of the welfare system will save around £5 billion by the end of the decade, Ms Kendall said in Parliament.

The Work and Pensions secretary warned how the current benefits system was “unsustainable”, with the cost expected to rise to over £70 billion by the end of the decade.

The £5 billion expected savings from the changes amount to around 7.1 per cent of the previously estimated welfare bill.