UK should focus any welfare savings on benefit levels not scope, think tank says

By David Milliken

LONDON (Reuters) - Britain's government should focus its search for welfare savings on the level of health and disability benefits rather than on tightening eligibility, and seek to get more people back to work, a think tank proposed on Thursday.

On Tuesday Labour Party finance minister Rachel Reeves said the welfare budget had "got out of control" under the previous Conservative government, in power for 14 years until July 2024, as she readied spending cuts for a March 26 fiscal update.

Britain's Office for Budget Responsibility has forecast that the cost of disability and incapacity benefits will reach 100 billion pounds ($128 billion) a year by 2029/30 - when Reeves has a target to balance day-to-day spending with tax revenues.

"Britain is getting older and sicker as a nation. The consequence is a fast-rising working-age incapacity and disability benefits bill, which is on track to rise by 32 billion pounds over the 2020s," said Louise Murphy, senior economist at the Resolution Foundation, which focuses on issues affecting low earners.

Some 30% of British working-age households had a disabled adult in 2022/23, up from 22% 10 years earlier, the think tank said.

In January, British courts rejected a government attempt to tighten work requirements on benefit claimants - ruling there had been inadequate consultation with disability groups. Murphy said freezing some benefits might be an easier option for Reeves to make savings.

Unemployed Britons aged over 25 receive support of 393 pounds a month plus some housing costs. This more than doubles to 810 pounds if they are unable to work for health reasons.

Stopping annual inflation-linked rises in health-related benefits would save 1 billion pounds a year by 2029/30 and spread the pain more fairly than removing all benefits from a smaller fraction of claimants, the Resolution Foundation said.

Britain also needed to do a better job of getting claimants back to work, it added. The rate at which claimants returned to work had halved since 2012.

Reversing this decline would save 600 million pounds a year but would require higher short-term investment in support for disabled people looking for work, Murphy said.

"While the government is keen to score short-term welfare savings ahead of the 26th March, truly effective reforms will take time to deliver," she said.

($1 = 0.7795 pounds)

(Reporting by David Milliken; editing by Suban Abdulla)