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Good afternoon and welcome to this week’s The State We’re In. Welfare reform of Britain’s benefits system is not a classic August subject, and yet, here we are.

The Prime Minister Andy Burnham, the leader of Her Majesty’s Opposition, Kemi Badenoch and the man who recently beat Count Binface in a rather pyrrhic victory in Clacton, Reform leader Nigel Farage, are all talking about it.

Burnham signalled that benefits changes were a priority for him by opting to keep Welfare Secretary Pat McFadden in post to continue the difficult task of overseeing sensitive welfare changes to disability benefits and youth unemployment support.

Bungling this by a) failing to do it and b) losing the support of the Parliamentary Labour Party (PLP) along the way was, arguably, a major reason for Burnham’s predecessor Sir Keir Starmer’s downfall.

Coming up in this week’s newsletter:

• Why Britain’s welfare crisis is not quite what politicians say it is…
• The harsh truth about why so many Brits need benefits…
• New polling suggests young people have clocked that hard work is no longer enough
• And, finally, Labour’s major planning changes: homes around stations and preserving pubs

The Prime Minister has signalled that significant change is coming, saying that the country needs to “get really serious” in reducing the welfare bill and that he wants to “ required to receive benefits”.

Badenoch then tried to pre-empt any Labour policies in a Telegraph op-ed by arguing that the Tories would take away foreign nationals’ right to social housing (more on why that’s not quite the announcement the Tories think it is in a moment).

Reform have now also thrown their weight at this issue. In a press conference on Monday, Nigel Farage’s party announced plans to cut around £50bn from the benefits bill, exclude foreign nationals from most benefits and replace the disability payments system.

So, which party has the right approach?

The truth about Britain’s benefits bill

It is true that Britain’s benefits bill is rising.

This year the Government to spend a total of £322bn on welfare in Great Britain, or 10.6 per cent of our GDP.

But what neither Reform nor the Tories have admitted is that just under half of that goes on the state pension. As I wrote here, our economic reality was very different when David Cameron and George Osborne brought in the triple lock, which guarantees pensioners a pay rise every year no matter what.

It is also true that the number of people, and therefore the cost of disability and health-related benefits are rising.

As I reported a few weeks ago from the interim launch of the Timms Review, which will decide how Personal Independence Payments (PIP) should be reformed, spending on this benefit is expected to jump from £26bn to over £41bn by 2030.

PIP began to replace Disability Living Allowance (DLA) in 2013. Unlike DLA, which often gave people lifetime benefits, PIP requires regular review, and if someone’s conditions worsen, they must apply for the enhanced rate of the benefit as opposed to the lesser standard rate.

The surge in PIP’s cost has been driven by two factors: firstly more older people claim it and, secondly, more than 100,000 people with ADHD as their main condition now receive PIP. The latest government figures show an increase of 40 per cent in these cases since Labour came to power two years ago.

And, finally, as I have reported extensively, the number of young people aged 16-24 who need benefits because they are not in education, employment or training (NEET) has risen.

The number of young people in the UK classified as has surpassed 1.01 million, reaching its highest level in over a decade, according to data from the Office for National Statistics (ONS).

However, it is just not true that Britain’s benefits problems have been driven by a surge in foreign nationals making claims.

Figures published in 2025 showed that more than a million Universal Credit claimants were born overseas, including around 700,000 EU citizens who arrived in the UK before Brexit and have the right to live and work in the UK.

In terms of social housing allocation, according to official statistics, most lead tenants of households with a new social letting in 2024/25 were UK nationals (89 per cent, or 233,000 lead tenants). European nationals comprised 4 per cent of lead tenants (10,000) with the remaining 8 per cent from nations outside the European Economic Area (EEA) (20,000). This distribution is similar to the previous year.

The difficult truth

Labour knows that Britain has a welfare problem. That is why work evaluating the system is already happening, whether that’s Sir Stephen Timms’ major PIP review or Alan Milburn’s nationwide assessment of youth inactivity. Both will report their findings later this year.

Behind closed doors at the Treasury, the growing benefits bill – which includes the state pension – is a cause of major concern for civil servants who work on Britain’s financial security regardless of which party is in power.

The bitter truth is that no sitting prime minister wants to touch the state pension because it would be an electoral disaster.

But, blaming the problem on foreign nationals as both the Tories and Reform have tried to do is somewhat lazy.

Solutions, not cuts

It is easy to talk about cuts, but far harder to ask a more nuanced set of questions: why are so many young adults now struggling? Why do so many people now report having ADHD? What has changed in our society? Is our economy still serving all who participate in it?

To the credit of McFadden, Timms and Milburn, they are asking these questions even if the answers will necessitate more complicated policy answers than merely cutting people’s support.

As McFadden put it to me at a Department for Work and Pensions (DWP) jobs fair earlier this year, he thinks the Government needs to “start with the right exam question”.

That is not “what benefits are you entitled to” but, instead, “how can the government help change your life?”

McFadden, like Timms, Milburn and Burnham have all said something along the lines of: “Britain must no longer be a place where people are signed off and written off.”

Labour’s plans for welfare reform are taking shape.

So far, as I learned from Timms when I interviewed him, it is likely that PIP assessments will be completely overhauled. It is also possible that some people will be offered services such as therapy or home help instead of cash benefits.

On a trip to the Netherlands with McFadden in July, I observed a government “fact-finding” mission to the country with Europe’s lowest NEET rate. While there, the work and pensions secretary signalled that he favours giving young people more support to stay in education and training, not less. He also made it clear that he doesn’t think Universal Credit is fit for purpose.

One of the headline-grabbing rabbits in the hat of Reform’s big benefits announcement on Monday was a plan to abolish PIP and the health element of Universal Credit entirely and replace them with a new, regularly reviewed “health security allowance” for the “gravely ill and severely challenged”. Businesses would be required to pay for sick employees for two years, getting a cut in employers’ National Insurance contributions (NICs) in return.

A policy which so bluntly suggests passing the upfront cost burden of support to employers would very unlikely survive any contact whatsoever with British businesses, not only because of an increased cost burden but also the additional admin this would entail, politically convenient as offering to cut the NICs that Rachel Reeves hiked might be.

However, if you listen to what Milburn, McFadden and Timms all say, it is clear that Labour are also looking at what more employers can do to support people with disabilities or health issues to access work as much as they are able.

The real causes of the problem

Labour may be asking the right questions. But there is still an elephant in the room. One that looms almost as large as the state pension.

On Sunday, I had my hair cut. My hairdresser is a single mum. She is in her mid-thirties, similar in age to me. She is in work. She has always worked.

And yet, she relies on £1,400 a month in Universal Credit, both in terms of child benefit and housing benefit. Without it, she cannot afford her rent.

She would like to work more, but she is afraid of losing her Universal Credit and aware that her work is unstable because when her clients are struggling with the cost of living, they see her less.

According to official figures from the Department for Work and Pensions, 37.8 per cent of people on Universal Credit were in some form of employment (PAYE or self-employment) as of January 2026. This accounts for approximately 3.1 million working claimants out of a total caseload of 8.3 million people.

In recent years, I have reported that some Universal Credit recipients rely on PIP to pay their rent because housing benefit has been frozen on and off for years while rents have soared.

And, yet, the cost of housing is nowhere in this conversation.

Nor is the fact that millions of young adults, like my hairdresser, are working, grinding and doing everything they can but, somehow, still finding that they cannot earn enough to survive without help.

New polling published on Tuesday by the Alan Milburn Review and intended to gauge the general population’s attitudes on the recent rise in the number of NEETs suggests that Brits have cottoned on to this.

A survey of 2,180 UK adults (aged 16 to 75) conducted between 31st July and 5th August 2026 by Ipsos revealed that just 27 per cent of respondents said that success depends mainly on hard work, while 22 per cent said it depends on who someone knows or their family background. Only 5 per cent believed success to be based on talent.

When it comes to welfare reform, the fact that hard work is no longer viewed as enough to thrive, let alone survive, is Britain’s final benefits frontier.

The Government must address welfare reform. But they must also seriously engage with housing costs and ask an even more complex “essay question” to borrow McFadden’s term: how can we make sure hard work pays off?

Housing crisis watch

Housing Secretary Angela Rayner and Housing and Planning Minister Matthew Pennycook’s long-awaited changes to the National Planning Policy Framework (NPPF) are now in force.

We already knew that it would include a “default yes” to make it easier to approve planning for new housing near stations and other transport hubs.

Another interesting element is a provision to protect pubs at risk from closure, making it harder to convert them into housing or retail space.

Vicky’s pick

Like everyone else, I tried to watch the eclipse through a colander. I think I saw something? Last week, I also went to the Proms and saw some Beethoven performed by the LA Symphony Orchestra.