Labour eyes up plans to cut health benefit levels under radical reforms to overhaul DWP system, minister says

Alison McGovern, the employment minister has announced plans to reform the work capability assessment system, warning that the UK cannot afford the current level of spending on health-related benefits.

She described the current system as "setting us in a bad direction in terms of the fiscal position".

McGovern signalled the Government is willing to overhaul the current assessment process for sick and disabled people which determines financial help for sick and disabled people.

She criticised the work capability assessment (WCA) for "focusing on what they can't do on a worst day, not on what they would like to do or what support or help they think that they would need or want."

McGovern told the Financial Times: "It's really important that our public finances are sustainable, and given some of the numbers... we've got a challenge in this area that we have to meet.

"The WCA doesn't work for anybody at the moment. It forces people to say how sick they are."

McGovern described this approach as "a serious problem" that wastes people's time and talent.

She said the system leaves many "on the scrapheap" in what she called a "heartbreaking" loss of opportunity.

The Government will publish a green paper this month outlining reforms to get more people into work while finding savings in the benefits system.

McGovern explained the whole point of the green paper is to reshape the system so we increase the possibility, the chance, the likelihood of people moving into work.

She highlighted that an estimated 200,000 people across the country on incapacity benefits say they would like to work immediately.

The minister spoke after data revealed nearly a million young people were classified as not in employment, education or training at the end of 2024.

Under the current system, individuals assessed as too sick to work receive incapacity benefits of about £5,000 a year, roughly doubling their income compared to those on the basic rate of jobless support.

These individuals are not required to look for work, however, they receive virtually no help to find employment if they want it. Many fear losing vital income if they try a job that doesn't work out.

Officials privately consider the WCA process dysfunctional, conducted largely online with few reassessments once claims are approved.

McGovern described it as "too high and too hard a boundary to get through".

These skewed financial incentives have contributed to soaring spending on health-related benefits, which already costs £65billion annually.

One option being considered would be to end the division between means-tested incapacity benefits accessed through the WCA and disability benefits. This could create a single assessment with more graduated, potentially time-limited support.

While DWP ministers want to use some resulting savings to fund employment support programmes, the Treasury is focused on cutting costs.

The shrinking of Chancellor Rachel Reeves' fiscal headroom since the October Budget has increased pressure to find savings.

The Office for Budget Responsibility remains sceptical about welfare reform savings due to past failures.

The Government needs to cut spending by at least £3bn over five years, which was factored into OBR forecasts under the previous Conservative government.

The previous government would have excluded people with mobility problems and less severe mental health conditions while maintaining the system's structure.

In contrast, Labour may reduce benefit levels for some recipients rather than excluding entire groups from support.

The Government is also likely to encourage engagement with employment support schemes.

DWP officials believe eventual savings could exceed the £3bn target, particularly if resources are provided to help the one-third of incapacity benefit claimants who want to work.