Liz Kendall is seeking to persuade the UK’s fiscal watchdog that programmes to get people off sickness benefits and into work will boost the public purse, as she tries to cut billions of pounds from the country’s welfare bill by the end of the decade.
The work and pensions secretary is laying the groundwork for an overhaul of the benefits system that she will outline later this month, as Labour tries to avoid being forced into swingeing spending cuts across government or tax rises.
The Treasury and the Department for Work and Pensions are in negotiations with the Office for Budget Responsibility to ensure the watchdog forecasts the largest savings possible from forthcoming welfare reforms, according to government officials.
The DWP in recent weeks has published five “ad hoc” impact assessments that set out the financial benefits of new programmes to get the sick and disabled into work.
Louise Murphy, a senior economist at the Resolution Foundation think-tank, said the assessments were clearly part of an effort to get the OBR to evaluate new government policies to introduce employment programmes more generously than it has in the past.
“Making big savings from the benefit system is really difficult,” she said. “The things that you can score highly tend to be really crude, essentially saying that certain cohorts of people will no longer benefit.”
“The [evaluations] very much make the case that . . . support is the way forward to get people back to work and save money,” said one official.
Government officials indicated the DWP was seeking to find billions of pounds in cumulative savings by 2030, when the OBR had projected the cost of health-related benefits would rise to about £100bn a year from about £65bn today.
One of the evaluations analysed the impact of the work choice programme in place across England, Scotland and Wales from 2010 to 2018.
It offered voluntary employment programmes to people with disabilities, including those at risk of losing their jobs because of a disability.
It found that eight years after being referred to work choice, participants had a payrolled employment rate 10.9 percentage points higher than a comparative group that did not take part.
The number of days in payrolled employment was 11.5 percentage points higher among people who took part in the scheme than those who did not.
The evaluation estimated that every £1 spent on the scheme was roughly cost neutral for DWP, while generating £1.67 for the Treasury and £2.98 for society, based largely on the output from participants’ time in work.
Kendall’s reforms are expected to include a radical overhaul of the work capability assessment, which determines financial support for the sick and disabled, ministers have indicated.
Kendall is seeking to convince the Treasury that some of the savings from welfare reforms should be invested back into DWP to roll out employment programmes and enhance support for those who could re-enter the workforce, government insiders said.
The shrinking of chancellor Rachel Reeves’ room for manoeuvre since the October Budget has raised the pressure on ministers to find savings, with officials looking increasingly to the country’s huge welfare budget.
Poor economic data, including flatlining growth, have threatened to wipe out the £9.9bn margin of error she gave herself against her own fiscal rules in October.
The DWP said: “We are determined to get Britain working again and have set out the first steps towards delivering an 80 per cent employment rate by joining up local work, health and skills plans.
The OBR declined to comment. The Treasury did not immediately respond to a request for comment.