Over the past few weeks, we have heard plenty from the UK Government about changes to working-age disability and incapacity benefits. Much confusion has reigned around the two, with the Government talking about incentivising people back into work, while looking at savings mostly from the disability system, which is paid regardless of work status. We discussed these in detail last week.

We are now expecting an announcement early next week in the Commons by Work and Pensions Secretary Liz Kendall. But reports suggest savings of the order of £6bn a year, most of which from the personal independence payment (PIP). This has the added complication of being devolved in Scotland, where adult disability payment (ADP) – administered by Social Security Scotland – applies instead, with migration assumed to have happened in full by the end of 2025. So there will be consequences of these changes in England and Wales for the Scottish Budget.

What are the rumoured changes?

The first is that PIP rates might be frozen. 2025-26 rates have already been set and uprated with September 2024 CPI inflation, and so the earliest this might come in would be 2026-27.

This is relatively easy to model, as we have information on the number of people forecast to be in receipt of PIP in every year of the forecast as of the Autumn Budget, as well as forecasts for spending in England and Wales from the OBR. Table 1 below shows the step-by-step calculation of the effect of this one-year freeze on the UK Government budget.

Table 1: Costing of a one-year freeze in PIP rates in 2026-27 for the UK Government

£m unless specified	2023-24	2024-25	2025-26	2026-27	2027-28	2028-29	2029-30
Baseline
Expenditure	21,656	25,989	28,721	31,520	34,472	37,436	40,942
Caseload (thousands)	3,151	3,519	3,861	4,159	4,434	4,728	5,055
Average weekly award (£)	132.17	142.02	143.05	145.75	149.51	152.27	155.76
Annual increase (%)		7.5%	0.7%	1.9%	2.6%	1.8%	2.3%
of which:
CPI uprating		6.7%	2.1%	2.7%	2.2%	2.1%	2.1%
Underlying factors		0.7%	-1.3%	-0.8%	0.4%	-0.3%	0.2%
Freeze rates in 2026-27
Expenditure	21,656	25,989	28,721	30,697	33,571	36,458	39,872
Caseload (thousands)	3,151	3,519	3,861	4,159	4,434	4,728	5,055
Average weekly award (£)	132.17	142.02	143.05	141.94	145.60	148.29	151.69
Annual increase (%)		7.5%	0.7%	-0.8%	2.6%	1.8%	2.3%
of which:
CPI uprating		6.7%	2.1%	0.0%	2.2%	2.1%	2.1%
Underlying factors		0.7%	-1.3%	-0.8%	0.4%	-0.3%	0.2%
Change in UK Government expenditure	0	0	0	-824	-901	-978	-1,070

 Source: DWP, OBR, FAI analysis

A one-year freeze reduces spending by around £800m in the first year, with rising amount to £1.1bn by 2029-30. This is due to a rising caseload over the forecast horizon, as well as the fact that a one-year freeze in indexation reduces rates in all subsequent years.

The effect this would have on the Scottish Budget would of course depend on how the Scottish Government chose to respond. The immediate effect of the UK Government’s policy would be to reduce the block grant adjustment for PIP/ADP, which is the amount transferred to the Scottish Government that is meant to approximate a counterfactual system in which the benefit available in England and Wales was still in place in Scotland. When the UK Government’s projected spending on PIP falls, so does the amount transferred to the Scottish Government.

It is beyond the scope of this exercise to say anything about what the Scottish Government could or should do. The table below simply sets out what the effect of a decision to freeze PIP rates in 2026-27 would mechanically imply for the Scottish Budget in the absence of any change in policy in Scotland.

Table 2: Effect of a one-year freeze in PIP rates in 2026-27 by the UK Government on the Scottish Budget

£m unless specified	2023-24	2024-25	2025-26	2026-27	2027-28	2028-29	2029-30
Baseline
Block Grant Adjustment for PIP	2,492	2,984	3,290	3,603	3,932	4,261	4,650
Expenditure on ADP	2,632	3,177	3,605	3,983	4,340	4,675	5,030
Net effect of ADP on Scottish Budget fiscal position	-141	-193	-314	-380	-408	-414	-381
Freeze PIP rates in 2026-27
Block Grant Adjustment for PIP	2,492	2,984	3,290	3,509	3,829	4,149	4,528
Expenditure on ADP	2,632	3,177	3,605	3,983	4,340	4,675	5,030
Net effect of ADP on Scottish Budget fiscal position	-141	-193	-314	-474	-510	-526	-502
Effect on the Scottish Budget	0	0	0	-94	-103	-111	-122

Source: SFC, OBR, FAI analysis

Such a one-year freeze, then, would worsen the Scottish Budget’s net position by around £100m in every year from 2026-27 onwards in the absence of Scottish Government policy, through a reduction in the block grant adjustment.

What about changes to eligibility?

This is much harder to model, as there isn’t enough detail so far to know exactly how they will be implemented.

The calculations below are thus an illustrative scenario in which all the reduction in expenditure is achieved through slowing the growth in the number people who are granted PIP. This could be due to higher rejection rates, lower application rates, or a combination of the two. In reality, we might expect that there could also be fewer people assessed at the highest rates, and the composition of people in receipt of PIP could change. Modelling that is beyond what we can reasonably do with this sort of calculation; but in any case, the direction of travel would be similar, even if some of the specifics of the calculations might change.

We have attempted to capture what the effects might be through a ‘ready-reckoner’ for how much the caseload would have to fall to save £1bn a year by the end of the forecast, and what that would mean for the Scottish Government.

A £1bn reduction in PIP spending through reduced caseload worsens the Scottish Budget by around £115m

Cutting spending on PIP by £1bn a year by the end of the forecast period would – in a scenario where all the reduction comes from a lower caseload – 2.5% fewer people in receipt of the benefit than would otherwise be the case. This would be about 125,000 people in 2029-30.

Table 3: Effects of an illustrative £1bn reduction in PIP spending through caseload reduction on both UK and Scottish Government’s budgets

£m unless specified	2023-24	2024-25	2025-26	2026-27	2027-28	2028-29	2029-30
Baseline
Expenditure	21,656	25,989	28,721	31,520	34,472	37,436	40,942
Caseload (thousands)	3,151	3,519	3,861	4,159	4,434	4,728	5,055
Average weekly award (£)	132.17	142.02	143.05	145.75	149.51	152.27	155.76
Annual increase (%)		7.5%	0.7%	1.9%	2.6%	1.8%	2.3%
Restricting eligibility
Expenditure	21,656	25,989	28,721	30,732	33,610	36,500	39,919
Caseload (thousands)	3,151	3,519	3,861	4,055	4,323	4,610	4,929
Caseload change (%)				2.5%	2.5%	2.5%	2.5%
Caseload change (thousands)				-104	-111	-118	-126
Average weekly award (£)	132.17	142.02	143.05	145.75	149.51	152.27	155.76
Change in UK Government expenditure	0	0	0	-788	-862	-936	-1,024
Effect on the Scottish Budget
Change in the BGA	0	0	0	-90	-98	-107	-116
Change in expenditure on ADP	0	0	0	0	0	0	0
Change in the Scottish Budget net position	0	0	0	-90	-98	-107	-116

Source: DWP, OBR, SFC, FAI analysis

In the absence of any Scottish Government policy change, the Scottish net position would worse by £115m. This is around 11.5% of the England and Wales reduction, which is roughly in line with what we would expect given current levels of the block grant adjustment.

The numbers recently reported in the press suggest a c.£5bn saving from restricted eligibility. Multiplying this ready-reckoner by 5 would suggest more than 650,000 fewer people than forecast in receipt of PIP by 2029-30, or a 1 in 6 reduction in the caseload. This seems very difficult to achieve, and certainly implausible in one fell swoop.

Table 3 assumes no freeze of PIP rates; if rates were to also be frozen, the reductions in caseload would save slightly less, and so achieving a £5bn saving at UK Government would look even more challenging.

Look out for more analysis next week

As we expect these changes to be announced early next week and to be a centrepiece of the Spring Forecast, we will be covering them in the coming days – so look out for our analysis as we learn more about the details of the policy.