Cut PIP benefits, top UK economist tells Burnham

Andy Burnham should not accept the “extraordinary” explosion in personal independence payments (PIP) and other disability benefits, one of the country’s most eminent economists has said. Paul Johnson, former director of the Institute for Fiscal Studies, said the Government should aim to reduce the “huge” amount spent on benefits, suggesting a “tightening” of PIP criteria as one option to rein in costs. He suggested that the new Chancellor, John Healey, might have to increase taxes in October’s Budget– with capital gains tax a leading contender – but urged Healey to scrap or “significantly” cut stamp duty. Shorts Johnson was the longest-serving director of the IFS, leading the financial think-tank for 14 years between 2011 and 2025. Since August last year he has been the provost of Oxford University’s Queen’s College, but he remains one of the country’s most influential economic commentators. Pressure to raise taxes In an interview with The i Paper at his lodgings in Queen’s, Johnson said that Burnham and Healey faced a tricky first Budget on 28 October. “The new Chancellor has inherited the same set of problems that the previous chancellor had,” he said. “The public finances still look pretty difficult, given that borrowing costs, if anything, have gone up a little bit since the last Budget”. A reduction in the Government’s “headroom” against its fiscal rules because of economic damage from the Iran war could create “pressure” to increase taxes or cuts to public spending, he added. On the spending side, Johnson said the Government had to get a grip on health-related benefits. “If we’re talking about working age welfare, I mean there is only one part of it which has really expanded very fast, or is expanding fast, and that is the disability incapacity benefit part,” he said. The bill for working age sickness and disability benefits has risen from £36bn in 2020 to £58bn today, with the Office for Budget Responsibility forecasting it will hit £78bn by 2030. In England and Wales, the number of people claiming PIP – which is supposed to help individuals deal with the extra costs of having a physical or mental health condition or disability – has risen from 3.6 million when Labour took power in 2024, to four million today. ‘Extraordinary increase’ in health-related benefits Johnson said: “We are seeing an extraordinary increase in the numbers of people receiving health-related benefits, and there is clearly a problem there.” Since the Covid pandemic, a growing proportion of claims have related to mental or neurodevelopmental conditions such as anxiety and ADHD, with the share of these claims rising from 16.5 per cent in 2020 to 24 per cent this year. Johnson said: “Personal independence payment was never designed to support such a large number of people with mental health conditions of one kind or another, and there are still a lot of people on the more severe form of the incapacity part of universal credit, which means they don’t have to look for work.” He suggested that perverse incentives in the welfare system were pushing people on to sickness benefits where claimants are not required to look for work. “The standard unemployment bit of universal credit is incredibly mean, very hard to live on… and you have to go through a lot of hassle to show that you’re looking for work,” Johnson said. “So if you can get on to these health-related benefits, my goodness, there’s a very good case for doing it. First of all, you’ll get an awful lot more money, and secondly, you’ll stop being hassled into work. So I think we need to find a way of overcoming that.” Waiting for the Timms Review After Sir Keir Starmer was blocked from cutting PIP by Labour rebels in 2025 , the Government commissioned the minister Sir Stephen Timms to conduct a review of the benefit. In his interim report last month, Timms said PIP was “not fit for purpose” and needed fundamental change, although the “current level of spending is not a great concern”. However “what would be a concern would be if it carried on going up forever more”, he said. Johnson said the Government should target a reduction in the bill. “I would hope that we end up with the Timms Review and policy following it, which does actually explicitly look to reduce the spending,” he said. “There are different ways of getting it down. We could just be tighter with the criteria. We could treat mental health issues differently to how we do at the moment. We could just provide a lot more support to get people into work. But I don’t think it is sort of sensible for us to be spending that much more in a completely unplanned way, and then just saying, ‘Well, that’s fine, we’ll carry on as before.’” Wealth tax unlikely On the tax side, Johnson said a new wealth tax would be unlikely in the Budget, but Healey could make changes to capital gains tax (CGT) or inheritance tax. He said increasing CGT could raise “a small number of billions”, but that any rise should be accompanied by broader reform, including closing “loopholes” such as the current rule that CGT is not charged when someone dies. Johnson also urged Healey to scrap stamp duty, which he said was a “disastrously damaging” tax. “If there’s one tax that I would just ideally abolish, but certainly reduce significantly, that [stamp duty] would be way out in front of the pack.” As The i Paper reported on Thursday, a group of northern Labour MPs are lobbying the Prime Minister to replace council tax and stamp duty with a proportional property tax. “In any rational world, you move in that direction,” Johnson said. ‘Go to uni – it’s still worth it’ As someone now responsible for running an Oxford college, The i Paper asked Johnson whether it still made sense for young people to go to university. “This is a really hard time for getting jobs for graduates and for everyone else who’s young. But all of the evidence still suggests that, on average, going to university is still very good for your lifetime earnings,” he said.