'Undue hardship!' Horror warning to millions on Universal Credit as Rachel Reeves plans billions in welfare cuts

The Office for Budget Responsibility (OBR) is expected to report that the £9.9 billion fiscal headroom afforded by the Chancellor's self-imposed fiscal rules has now evaporated due to sluggish growth, higher inflation (recently hitting three per cent), and increased government borrowing costs, compounded by commitments to raise defence spending to 2.5 per cent of GDP.

The threat of a global trade war with Donald Trump has also dampened the economic outlook, even if Britain dodges tariffs.

Reeves is compelled to make spending cuts due to a combination of escalating day-to-day spending pressures and her self-imposed fiscal rules, which state that borrowing can not be used to fund day-to-day spending, and that debt must be falling as a percentage of Britain’s GDP.

Could Universal Credit come in the firing line?

Reeves is expected to make deep cuts to the welfare budget, targeting health-related benefit payments, with a speech expected on the measures from work and pensions secretary Liz Kendall.

Reeves has previously pledged "fundamental" reform of the welfare system, with concerns over rising spending on health-related benefits since the Covid pandemic.

Insiders suggest these cuts aim to reduce the welfare bill by addressing disability and incapacity benefits, aligning with existing government policy goals to "fix welfare to get people back to work".

With the Spring Statement looming, experts fear Universal Credit could be next on the chopping block.

As Matthew Parden, CEO of money management app Marygold & Co (UK) points out to GB News, "rolling back the clock" to before the general election, Labour's manifesto made a clear statement of intent to review Universal Credit, pledging to "review Universal Credit so that it makes work pay and tackles poverty".

As it stands, people on Universal Credit who are deemed fit for work must provide evidence of job applications or face sanctions - but people out of work who also qualify for sickness benefits both get more money and are not necessarily required to seek work.

Parden suggests the Chancellor may implement proposals to reduce "system abuse", such as tightening sanctions or eligibility criteria.

An alternative approach could involve streamlining Universal Credit to reduce inefficiencies in claims processing, thus cutting administrative costs without affecting claimants, the CEO says, adding: "Technological improvements could also potentially help reduce costs while maintaining the level of support."

Elizabeth Rivelli, a personal finance and insurance expert at Best Money, is "certain" Universal Credit is in the government’s sights, as it's the "largest welfare program for working-age households, and costs have risen well beyond expectations".

This year alone, spending is projected to be £4.7billion higher than initially forecast. By 2028, Universal Credit is set to account for 86 per cent of total welfare spending, making it an obvious target as Chancellor Reeves looks for ways to close the growing fiscal gap.

Like Parden, Rivelli thinks potential cuts could come in several forms, such as tightening eligibility, freezing benefit levels, delaying planned increases, or making it more difficult to qualify through a stricter Work Capability Assessment.

All experts agree that such a move would be political dynamite for a party that has championed the welfare system since its creation.

Indeed, Darren Mercieca, a finance expert and CFO at Kiwi Bets, thinks cuts to Universal Credit would be "difficult to sell politically".

As he explains, reducing benefits could "erode public confidence" as individuals continue to struggle with the cost of living problem.

"Backlash against previous welfare cuts, such as the two-child benefit cap, has already occurred. The administration may suffer severe political repercussions if it takes a too assertive stance in this area," Mercieca added.

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Rivelli of Best Money agrees that it would have "serious repercussions" at a time when many Universal Credit recipients already struggle financially, especially those with disabilities or chronic illnesses.

They might find it difficult to pay for necessities if their help is cut, particularly in light of the high rate of inflation, she says, adding: "Tighter requirements for claimants may also force people into unsafe or inappropriate jobs, which could result in more financial instability rather than long-term employment."

Like Mercieca, the personal finance expert also warns further welfare cuts could "spark resentment" among the party's supporters, who have already criticised the party internally for measures like the two-child benefit cap.

"Additionally, these actions run the risk of increasing demand for other social services, such as food banks, local governments, and the NHS, which would shift the financial burden rather than alleviate it."

Parden, CEO of Marygold & Co, also emphasises the dire social and economic consequences, urging "careful consideration" before making cuts.

As he explains to GB News, any reductions would need to be carefully designed to avoid causing "undue hardship", particularly at a time when the global economy is facing rising inflation and uncertainty.

The financial expert added: "Balancing cost reductions with fairness in the system is key to ensuring any reforms do not leave vulnerable groups at a disadvantage."