DWP overhaul looms as 'high chance' Labour cuts disability benefits and PIP to tackle market anxiety

Reeves has instructed the Treasury that she wants to get "tough" on spending according to The Telegraph, favouring cuts in unprotected departments over new tax increases. The Treasury's focus on spending cuts has intensified as economic growth forecasts weaken and inflation continues to fall more slowly than anticipated.

PIP payments, which can reach up to £9,600 annually, are designed to help cover additional costs faced by people with disabilities and health conditions. Since their introduction in 2013, PIP claims have risen substantially, with a notable increase in claims related to mental health and anxiety issues.

Monthly new payments for anxiety or depressive disorders more than doubled from 2,200 in 2019 to 5,300 in 2023. Government officials are exploring stricter controls on disability payment eligibility, including tightening requirements for proof of disability.

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The Labour Government is continuing work started under the previous Conservative administration, examining potential reforms to the PIP system. Options under consideration include being more specific about qualifying mental health conditions and requiring enhanced medical evidence before approving claims.

While Work and Pensions Secretary Liz Kendall has dismissed the idea of replacing cash payments with vouchers, officials are examining other alternatives to weekly cash handouts.

The reforms are being driven by senior figures in No 10, who are keen to counter Reform's popularity, and the Treasury, which is seeking substantial savings. Friday saw significant market turbulence, with interest rates on 30-year government bonds reaching their highest level since 1998.

Jack Meaning, Barclays Bank's UK chief economist, warned there was a "high chance" the Chancellor would need to announce emergency spending cuts during her upcoming Spring Budget.

Reeves remains in China for talks with counterparts, despite calls from opposition parties to return to Westminster amid market concerns. The market movements have cast doubt on the Chancellor's pledge to fund day-to-day spending through taxation rather than borrowing.

Economists suggest recent market shifts have effectively eliminated the £10billion "fiscal headroom" Reeves had reserved to meet her fiscal promises. This buffer was notably smaller than those maintained by previous chancellors.

The Labour Government must now respond to the original Conservative consultation on PIP reforms, which outlined several potential changes to the system. Key proposals include more specific criteria for mental health conditions that qualify for payments.

Another reform under consideration would require claimants to provide more extensive medical evidence before their claims are approved. The consultation also explored the possibility of replacing some cash payments with non-cash benefits.

While Work and Pensions Secretary Liz Kendall has already ruled out switching to a voucher system, other alternatives remain under consideration. These reforms follow similar proposals made by Rishi Sunak during his premiership, when PIP system reform was central to his welfare agenda.

A DWP spokesman said: "We don't comment on speculation. We have been clear that the current benefits system needs reform so it is fairer on the taxpayer and people get the support they need to move into work."

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The spokesman added proposals for reforming the health and disability benefits system would be brought forward in the Spring.

These would build on the government's Get Britain Working White Paper, they said.

The DWP told The Telegraph its commitment to helping disabled people who can work secure employment while ensuring support remains available for those who need it.

The reforms are expected to form part of what officials describe as a "proper plan" to address the benefits system.