The Institute for Fiscal Studies (IFS) has published a new report recommending that the Department for Work and Pensions (DWP) consider means-testing Personal Independence Payments (PIP), a move that could save £8.2 billion. The report, released on Thursday, comes as the Labour government continues its Timms Review into disability benefits.
PIP's unusual feature highlighted
The IFS described PIP as having an "unusual feature" compared to other benefits: it is not means-tested, meaning high-income households can claim it. The think tank outlined two competing perspectives on this design. If the primary goal is reducing inequalities arising from disability, the IFS argues there is a good case for keeping PIP non-means-tested. However, if ensuring disabled people can achieve a minimum standard of living is prioritised, the case for means-testing strengthens.
Reform UK has recently proposed means-testing PIP, although the Timms Review has indicated it will recommend keeping the benefit non-means-tested.
Potential savings and behavioural responses
The IFS calculated that integrating PIP into Universal Credit (UC) would deliver a saving of £8.2 billion, equivalent to 33% of PIP spending, assuming claimant behaviour did not change. The report cautions that the actual saving would be smaller due to behavioural responses. More people would likely claim UC to retain their PIP, and work incentives would weaken, leading to fewer people working.
The IFS noted that any means-tested benefit involves a trade-off between targeting low-income households and discouraging work. UC is withdrawn at a rate of 55 pence for every £1 earned after tax, above a small 'work allowance' for some claimants, known as the UC taper.
Impact on work incentives
For existing UC claimants, adding PIP to UC would increase the earnings level at which UC is tapered to zero. This would reduce the incentive for some claimants to take on additional hours of work, as they would face the UC taper over a wider range of earnings. The report's findings will inform the ongoing Timms Review as it considers the future structure of disability benefits.
