Government at risk of breaking its own welfare spending cap

The Government is “vulnerable to a breach” of the cap on welfare spending in 2015-16 (Getty Images)

The Government has been warned that it may breach its self-imposed cap on welfare spending because it is failing in its drive to reduce the cost of the main benefit for the sick and disabled.

Leaked documents say that the cost of Employment Support Allowance (ESA) is projected to rise to £13.3bn by the 2018-19 financial year and is "one of the largest fiscal risks currently facing the government".

Reports passed to the BBC suggest the Government is “vulnerable to a breach” of the £119.5bn cap on welfare spending in 2015-16 previously trumpeted by George Osborne. Ministers would either have to cut spending or make a statement to Parliament explaining their failure. The documents warn that further cuts would be controversial, saying that the “low-hanging fruit” has already been picked.

Ministers had hoped that more regular “fitness for work” tests would reduce the bill. But reports say that people are remaining on ESA for longer than expected because their illness and disability has been underestimated. Claimants are moving off Jobseeker's Allowance and on to ESA, which has fewer sanctions. There have also been problems with the private firm Atos, which is withdrawing from its contract to carry out health assessments.

Public spending watchdogs have attacked the launch of the Personal Independence Payment (PIP) for the disabled as a “fiasco”.

Rachel Reeves, the shadow Work and Pensions Secretary, said the work capability assessment was "in meltdown” and urged David Cameron to “get a grip” of the “chaotic” Department for Work and Pensions (DWP). "It is a catalogue of total failure and threatens huge costs to the taxpayer," she said.

The Treasury insisted that delivery of ESA was "back on track" and said it was "confident" of remaining within the cap, which excludes the state pension and some jobless benefits. A DWP spokesman said the spending projections were "spurious scenarios" based on no action being taken. "We've taken action and will ensure we do not breach the welfare cap. Speculation to the contrary is nonsense," he said.

The DWP pointed to figures showing that one million claimants of Incapacity Benefit - which is being replaced by the ESA - have been classed as fit for work. It said there are now 160,000 fewer people claiming sickness benefits than in 2010, with 700,000 more people looking or preparing for work.

But Dame Anne Begg, the Labour chairman of the Commons Work and Pensions Select Committee, said ministers appeared to have "believed their own rhetoric" about large numbers of claimants being fit for work.