Universal Credit claimants are set to benefit from a “permanent, above-inflation” rise in their standard allowance, equating to a £775 annual increase by 2029-30. This increase addresses the “perverse financial incentives” that encourage people to remain out of work.

Speaking to the House of Commons today, Work and Pensions Secretary Liz Kendall explained that the “health top-up” for Universal Credit (UC), paid to those with a health condition or disability that limits their ability to work, is currently worth more than the standard allowance. The standard allowance is the base Universal Credit rate paid to a household, depending on their age and living arrangement. Ms Kendall said the Government would legislate to “rebalance” Universal Credit payments to encourage more people to work. The changes, which will take effect in April next year, aim to ensure a “fairer structure” for the benefit.

She explained that the current system incentivises people out of work due to illness or disability to claim incapacity benefits, as these are higher than those available to the unemployed.

Citing evidence from the Office for Budget Responsibility (OBR) and the Institute for Fiscal Studies (IFS), Ms Kendall noted that these financial incentives contribute to the rise in incapacity claims.

She told Parliament: “We will tackle this problem head-on. We will legislate to rebalance payments in Universal Credit from April next year, holding the value of the health top-up fixed in cash terms for existing claimants, and reducing it for new claimants. Additionally, we will introduce an extra premium for people with severe lifelong conditions to ensure they have the financial security they deserve.”

She added: “And alongside this, we will bring in a permanent above-inflation rise to the standard allowance in Universal Credit for the first time ever, a £775 annual increase in cash terms by 2029-30 and a decisive step to tackle the perverse incentives in the system.”

Ms Kendall also announced that the “work capability assessment” for Universal Credit, used to determine eligibility for incapacity benefit payments, will be scrapped in 2028. Instead, extra financial support for health conditions will be based on a person’s health or disability rather than their capacity to work.

Finally, Ms Kendall said there would be a consultation on delaying access to the health top-up in Universal Credit until claimants are aged 22. She stated that savings from this change would be “reinvested” so “every young person is earning or learning and on a pathway to success.”

Some groups argue this delay risks “delegitimising young people’s health issues and undermining efforts to support them into work”.

Ben Harrison, director of the work foundation at Lancaster University, a leading think tank for improving working lives in the UK, said: “Making it more challenging for young disabled people and those with long-term health conditions to access a health-related top up to their benefits is likely to leave many without the support they need or push them into poorly paid and insecure work.”

James Watson-O’Neill, chief executive at the national disability charity Sense, added: “Disabled people need greater support from the government, not draconian cuts that will drive more disabled people into poverty.

The Prime Minister’s official spokesman has insisted the Cabinet is united in its agreement on the need for a welfare reform.

The Number 10 spokesman said: “The whole Cabinet agreed on the need for these reforms and supported the work and pension sector and introducing them, and the crucial importance of addressing a system that has left people trapped out of work and is not supporting people back into work.”

The Office for Budget Responsibility has forecast that spending on health and disability benefits for working-age adults will increase from £48.5 billion in 2023/24 to £75.7 billion in 2029/30.

The announcement comes a week ahead of the spring statement, as Chancellor Rachel Reeves struggles to balance the books in the face of weak economic growth and mounting debt interest costs.