Chancellor Rachel Reeves has laid the ground for a long-trailed change to child benefit limits for parents on universal credit this week.
After months of political pressure from Labour MPs Reeves is expected to scrap the two-child benefit limit for universal credit claimants, at a cost of more than £3bn in her Budget on Wednesday.
The Chancellor has made it clear she is not prepared to leave the growing welfare bill – largely caused by an increase in the number of people off work sick, or claiming disability benefits – untouched.
Writing in The Sunday Times, Reeves reiterated her plans are to change the welfare system from one “trapping millions of people on benefits” and that “pay[s] to be off sick instead of work”.
“Discipline and control over public spending,” Reeves wrote, will “require us to reform our welfare system”.
So, what could change?
Universal credit cut for under-22s
Previous attempts to save up to £5bn a year in welfare reforms – by tightening the eligibility of Personal Independence Payments (PIP) – were squandered earlier this year after Labour backbenchers fiercely pushed back.
But the Government successfully cut the value of out-of-work sickness benefits for new claimants of the universal credit health element (UC health), in order to try to reduce what ministers say is an “incentive” for people to be signed off sick.
The Government says there is a discrepancy between those who are unemployed and those who are out of work with a health condition – with the latter cohort not facing the same conditions around having to look for work.
The Universal Credit Act 2025 legislated for changes which will “rebalance” the rates from April 2026 by increasing the basic standard allowance and reducing the additional payments for new claimants with health conditions or disabilities.
Ministers could go further and ban under-22s from being eligible for UC health – with the exception of those with some specific and severe conditions.
Government sources say these plans have been consulted on and ministers are currently considering the responses.
Given the questions lingering over how Reeves will attempt to make any further savings, it is plausible the Chancellor could use her Budget to confirm that she intends to go forward with this proposal.
Tax cuts for hiring young workers
Ministers have also looked at the possibility of introducing financial incentives to subsidise the cost of hiring younger workers, The i Paper previously revealed.
The idea is that getting more young people off benefits would cost the Government less in tax breaks than it would in welfare payments.
Tax incentives in the form of national insurance contribution rebates are already available for employers hiring under-21s and for apprentices. But officials have looked at proposals that could see a similar exemption to include all workers up to the age of 24.
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Such a policy would run alongside the Government’s Youth Guarantee, which pledged young people must be either in education, training or employment – or risk losing benefits.
Limiting PIP claimants’ access to Motability scheme
The Chancellor is not expected to announce any immediate changes to personal independence payments (PIP) after previously being forced to shelve cuts.
In lieu of these cuts, a review of the PIP assessment process has been launched by disabilities minister Sir Stephen Timms. This will report back in autumn 2026.
No 10 has left the door open to money being shaved off the PIP bill, but no explicit savings are expected to be set out before the conclusion of the review next year.
While changes to PIP eligibility are not expected, the Chancellor is looking at making changes to the Motability scheme which is used by some claimants.
People who receive PIP to help pay for the costs of getting around are able to use some of that money to pay into the Motability scheme and lease an adapted car.
Reeves has considered whether to scrap the VAT exemption from the scheme, which could save around £1bn, and limit the availability of certain “luxury” car makes.
Benefit fraud crackdown
The Government has also been pushing to bring down levels of fraud in the welfare system, and the Chancellor will double down on this in the Budget.
Treasury sources said on Sunday that it was “truly unacceptable” that nearly 13 per cent of universal credit payments during the last parliament were incorrect due to fraud and error.
And they revealed Reeves will expand the Government’s Targeted Case Review (TCR) scheme which sources said would save an additional £1.2bn by March 2031. This would take the total savings of the scheme to £9.6bn.
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The scheme works by identifying error or potential fraud in benefit claims by identifying instances where claimants had not declared savings or property ownership which led to incorrect payments going to individuals.
A Treasury source said: “We will never tolerate fraud, error or waste in the welfare system – every pound of taxpayers’ money should be spent with the same care with which working people spend their own money.
“That’s why the Chancellor is doubling down on this next week – extending Targeted Case Reviews to save taxpayers billions and ensure help goes to those who genuinely need it and safeguard taxpayers’ money so it can be invested in the public services we all deserve.”
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