The Economic Pitfalls of Cutting Universal Credit and PIP

Starmer's attack on the sick and disabled could leave him falling into his own black hole...

The UK government’s latest plans to cut Universal Credit and Personal Independence Payments (PIP) have been framed as necessary fiscal discipline, aiming to reduce public spending and encourage more people into work. However, beyond the surface-level savings, these cuts may have unintended economic consequences that undermine the very goal of balancing the books.

Welfare benefits are not just a cost - they are also a source of economic activity. When recipients receive benefits, they spend them on necessities: rent, food, transportation, and other essentials.

This spending flows directly into businesses, supporting jobs and generating tax revenue. Reducing these payments risks shrinking consumer demand, leading to slower economic growth and, ironically, lower tax receipts.

There is also the issue of workforce participation. The argument for these cuts often assumes that reducing benefits will push more people into work. Yet many benefit recipients - particularly those on PIP - face significant barriers to employment. If the support that helps them manage their conditions is reduced, their ability to participate in the workforce could decline rather than increase.

Without proper assistance, some may be pushed further from employment, increasing reliance on other state services in the long run.

Furthermore, as businesses see demand drop due to reduced consumer spending, the economic slowdown could affect job creation. Lower employment means fewer taxpayers contributing to government revenues, counteracting the supposed fiscal benefits of benefit cuts.

In short, while cutting welfare may appear to be a cost-saving measure on paper, it risks triggering a chain reaction of lower spending, slower economic growth, and ultimately a weaker tax base. The government’s attempt to tighten its belt will likely end up making the overall fiscal picture worse, not better.