Reeves wants to cut sick pay to boost public spending

As part of her preparations for a money-saving budget, Rachel Reeves is considering cuts to the social budget so that more money can be spent on long-term investments.

The Chancellor is apparently considering cutting government spending on welfare by helping more people get back into work – which would reduce the cost of income-tested health benefits as well as the unemployment portion of Universal Credit. A source close to the Chancellor said: “If there are savings to be made in the welfare budget, she wants to find them.”

Liz Kendall, Secretary of State for Work and Pensions, said on the sidelines of a conference that the government was preparing to propose “really big reforms” to job centres and welfare to coincide with the publication of next month’s budget.

The aim will be to get people into work, with the focus on career advancement rather than police perks, she said.

The minister promised to address the number of young people unemployed due to mental health problems, saying: “When you are young, you have to earn money or learn.”

Any savings are expected to be partly spent on increased investment, with the money going to projects such as rail and green energy, which Labour believes can deliver longer-term economic benefits.

In her speech to the Labour Party conference, the Chancellor promised that the looming cuts in tax and spending policies would lead to a “win” in the long term in the form of economic growth.

It vowed not to back down from cutting heating subsidies for the winter, despite an ongoing internal dispute over the decision, which has met with fierce resistance from the unions.

And Reeves used her speech to warn that there are “too many people who are unemployed because of chronic illness, waiting for treatment or lack the skills, training and security they need to fulfil their potential”. This leads to “a welfare state that does not always encourage work”.

She told the Liverpool conference: “Where an active government is needed, this government will act. And it is time for the Treasury to stop just counting the costs of investment and start recognising its benefits.”

She announced that a draft of the UK industrial strategy would be published in the coming weeks.

The Chancellor of the Exchequer is under massive pressure from MPs, charities and Labour Party union supporters to reverse his decision to scrap winter heating allowances for the majority of pensioners.

However, she defended the controversial policy, telling campaigners: “I have chosen to make the winter fuel subsidy means-tested so that it only benefits those who need it most. I know that not everyone – in this room or in the country – will agree with every decision I make. But I will not shirk those decisions.”

Reeves, who was warned against a return to austerity, tried to shed her reputation as a pessimist by emphasising the long-term benefits of a strict approach to public finances.

She said: “I see the prospect of success if we make the right decisions now. Stability is the crucial foundation on which all our ambitions are built. It is the essential prerequisite for companies to be able to invest with confidence and families to be able to plan for the future.”

“The Liz Truss experiment has shown us that any growth plan without stability is doomed to failure. That is why we will take the necessary decisions to secure our public finances and lay the foundations for sustainable growth. Stability, coupled with reform, will create the conditions for companies to invest and consumers to spend money with confidence. Growth is the challenge. And investment is the solution.”

Reacting to the speech, Shadow Chancellor Jeremy Hunt said: “The last few months – and today’s speech – have been a great opportunity to set out plans for economic growth. The Chancellor has once again wasted it with discredited attacks on the opposition. That is not governing – and business confidence is now eroding as a result.”

According to the government at the time and the Conservatives’ plans presented in June, £12 billion could be saved annually on social benefits.

The Tories’ plans included tightening social benefits and investing in mental health treatment to help people get back into work.

Disability benefit payments currently stand at around £39 billion and are expected to rise to £58 billion by 2028/29.