UK sets out 5 billion pounds of welfare cuts to tackle spiralling bill

By William James and Muvija M

LONDON (Reuters) -Britain's Labour government announced plans on Tuesday to cut more than five billion pounds ($6.48 billion) from its welfare budget by 2029/30, seeking to tame a sharply rising bill despite unrest among some of the party's lawmakers.

The cuts are a prelude to a March 26 fiscal statement, when pre-election promises to limit tax rises and bring public finances back into balance are due to meet the reality of lower-than-expected growth and tax revenues and a worsening global economic backdrop.

Ministers are pulling every lever they can to boost growth and control spending, seeking to stay on track to meet a self-imposed fiscal constraint of balancing day-to-day public spending with tax revenues by the end of the decade.

That drive has put the focus on the welfare budget, which includes supporting people with disabilities and long-term health conditions and already exceeds Britain's defence budget.

Ministers see welfare reform as an opportunity to cut costs while boosting the economy by getting more people into work.

The welfare bill had been on course to top 100 billion pounds ($129 billion) by 2030, driven in part by the fact Britain has one of the highest reported rates of working-age people out of work due to ill health among European peers.

The Institute for Fiscal Studies, an independent think tank, said last year the number of working-age people receiving health-related benefits in England and Wales jumped by 38% in four years to 3.9 million people or 10% of the working-age population. The figure fell or remained flat in Australia, Canada, France, Germany, and the United States.

"This is a significant reform package that is expected to save over 5 billion pounds in 2029/30," work and pensions minister Liz Kendall said in a statement to parliament.

The raft of technical changes included tightening the criteria for who receives the main disability benefit payment.

Kendall said the fiscal impact of the package would be assessed by the budget watchdog in the forecasts published on March 26.

If delivered, a 5 billion pound saving would be a small but valuable contribution to the margin by which the government meets its fiscal target.

That margin stood at a slim 9.9 billion pounds in October's budget announcement - but economists say higher borrowing costs and weak economic growth since then have probably wiped it out.

INDEPENDENT LIVES

Labour was elected by a landslide last year promising a decade of national renewal after 14 years of Conservative Party-led government it says created a welfare system with perverse incentives that is vulnerable to fraud.

Prime Minister Keir Starmer's government has rejected any suggestion it is repeating an austerity drive that was overseen by the Conservatives after the global financial crash, which Labour blames for many of Britain's long-term economic problems.

The government sought to frame Tuesday's changes as a way to help those who want to work, and restore the trust of voters who feel the system has become open to abuse.

According to a poll by YouGov, 68% of Britons believe the benefits system works badly and needs reform.

Starmer said millions of people, especially young people, have the potential to work and live independent lives, but are instead left on benefits. "It would be morally bankrupt to let their life chances waste away," he said.

Nevertheless, some Labour lawmakers expressed concern over whether cutting benefits betrayed the party's centre-left values.

Last year, the government toughed out a decision to cut winter fuel payments for some pension-age Britons, provoking a bitter internal party dispute.

Disability equality charity Scope said the changes should "shame the government to its core" and would be counterproductive because they only shifted pressure to other parts of the system like the state-funded health system.

($1 = 0.7714 pounds)

(Reporting by William James, Elizabeth Piper and Muvija MAdditional reporting by William Schomberg, Sam Tabahriti and Andy BruceEditing by Peter Graff, Kate Holton, Alexandra Hudson)