DWP warning: Labour's plot to cut PIP and disability benefits will have 'disastrous consequences' for Britons

"Life costs a lot more when you're disabled, on average by over £1,000 every month," he said. Southgate explained that these benefits help pay for vital equipment, support at home, and sufficient heating to stay well.

"We're hearing constantly from people who already can't afford these, so taking further support away would be devastating," he added. While acknowledging the need for reform, Southgate urged the Government to work with disabled people to fix what he called "our broken benefits system".

Labour is understood to be preparing significant cuts to disability benefits administered by the Department for Work and Pensions (DWP) as part of efforts to calm market concerns over its economic plans.

Senior figures in Downing Street and the Treasury believe substantial cuts to the DWP budget are necessary, with PIP being one of the benefits considered a key target for reform.

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Chancellor Rachel Reeves has instructed civil servants she wants to get "tough" on spending, favouring cuts in unprotected departments over new tax increases. The reforms are being driven by senior figures in No10, who are keen to counter Reform's popularity, and the Treasury, which is seeking substantial savings.

The crackdown will include tougher rules on who can get disability benefits, with an increased burden of proof that payments are needed. The changes will be revealed later this year, with a Budget in March and a spending review in June which will set departmental spending levels.

PIP payments can currently reach up to £9,600 annually, designed to help cover additional costs faced by people with disabilities and health conditions.

A significant increase in mental health-related claims has been observed, with monthly new payments for anxiety or depressive disorders more than doubling from 2,200 in 2019 to 5,300 in 2023.

The Government is exploring stricter controls on disability payment eligibility, including being more specific about qualifying mental health conditions. Officials are examining options to require 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 considering other alternatives to weekly cash handouts.

Labour has expressed a desire to move away from binary categories of "fit for work" or "not fit for work", aiming to make the system easier to navigate. The reforms would build on similar proposals made during Rishi Sunak's premiership, when PIP system reform was central to his welfare agenda.

The economic pressures driving these reforms are significant, with disability benefit costs forecast to soar six per cent per cent to £35billion annually by 2029. Friday saw substantial 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.

Recent market shifts have effectively eliminated the £10billion "fiscal headroom" Reeves had reserved to meet her fiscal promises. The Treasury's focus on spending cuts has intensified as economic growth forecasts weaken and inflation continues to fall more slowly than anticipated.

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A DWP spokesman responded to the reports, saying: "We don't comment on speculation." The spokesman added 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."

The DWP confirmed 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, according to the spokesman.

They pointed to "millions of people on long-term illness or disability out of work and not getting the support that they need." These reforms are expected to form part of what officials describe as a "proper plan" to address the benefits system.

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