Means-test disability benefits to save £8billion and cut handouts to middle-class youngsters with anxiety, Labour told

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By SAM MERRIMAN, POLITICAL CORRESPONDENT

Published: 00:01 BST, 17 September 2026 | Updated: 00:13 BST, 17 September 2026

Labour could save about £8billion a year by means-testing disability benefits to cut handouts to middle-class young people with anxiety, according to a new report.

Andy Burnham could slash a further £2.2billion from Britain’s bloated benefits bill by limiting disability benefit claims in under-30s to those with the most severe conditions, it found.

The Institute for Fiscal Studies (IFS) report suggests that means-testing Personal Independence Payments (PIP) would cut spending by a third and deliver an initial saving of £8.2billion.

It added that this could be done by making PIP part of the main unemployment benefit – Universal Credit (UC), which is already means-tested – and would more closely target those most in need.

However the IFS warned that, over time, this £8billion saving could diminish due to ‘behavioural responses’ as more people claim UC in order to keep their PIP. But the think tank said there would ‘still be a large saving’ despite this.

Eduin Latimer, senior research economist at the IFS, said there will be ‘losers as well as winners’ from any reforms to PIP and ‘the government needs to decide what PIP is for’.

‘If it is to help disabled people in the greatest need, there is a case for targeting support on those with the most severe disabilities or on the lowest incomes,’ he said.

It comes after new Department for Work and Pensions (DWP) figures showed that more than four million people are now getting PIP after the number of claimants hit a record high under Labour.

Prime Minister Andy Burnham has been told he could slash more than £8billion from Britain's bloated benefits bill by means-testing PIP

Spending on PIP has increased from £14billion in 2019-20 to £25billion in 2025-26, and official forecasts suggest it will rise to £34billion in 2030-31.

Last year Labour was forced to abandon plans to trim the disability benefits bill by £5billion following a major backbench rebellion. Instead it launched a review by social security minister Sir Stephen Timms which is due to report back this autumn.

The IFS has made a series of suggestions for reforming PIP ahead of the Timms Review and October’s Budget. Among its suggestions are stopping all of the 689,000 people aged under 30 from claiming PIP, which would save £5.5billion a year.

However the IFS warned that many of those affected have severe disabilities. Instead it suggested that PIP could be limited to under-30s with only the most severe conditions, which would still result in a saving of up to £2.2billion a year.

Meanwhile, a separate report from the Re:State thank tank, whose ideas the Prime Minister has previously adopted, argues Britain is an outlier on disability benefits compared to similar countries.

The report found that 7.8 per cent of Britain’s working-age population claimed extra-cost benefits because of a medical condition in 2024, up 50 per cent since 2016.

Yet by comparison just 0.2 per cent of Denmark’s working-age population, 0.6 per cent of France’s and 2.5 per cent of Norway’s claim their equivalent benefit, it adds.

There are eight possible PIP award levels and the average amount received is £7,420 per year. However some 37 per cent of claimants receive enhanced elements, leading to a maximum total award of £10,120 a year.

The Re:State report found this is ‘generous’ by international standards. Britain’s maximum payment over a four-week period is more than five times that of New Zealand and almost six times as much as recipients in Denmark.

The report also points out that PIP claimants get ‘unconditional’ cash, meaning it can be spent on anything with no requirements to provide evidence that it is used to help with a condition.

No other country hands out disability benefits without reviewing what an individual’s extra costs are, it adds. Denmark, France, New Zealand, Norway and Sweden all require evidence of costs such as invoices and receipts.

Charlotte Pickles, Re:State’s chief executive, said that Britain has ‘confused cash with compassion’ and the Government has ‘broken the welfare state’.