The impact of Personal Independence Payment, and freezing its level in 2025

How the disability benefit, and one reform the government is reportedly considering, affect the UK household sector.

The UK provides Personal Independence Payment (PIP) is a government benefit paying support to individuals who have long-term physical or mental health conditions or disabilities. News outlets have reported that the UK government plans to reform the requirements to claim PIP, including potential changes to eligibility criteria, assessment processes, or payment rates.

To be eligible for PIP, claimants must be between the ages of 16 and state pension age, have a long-term physical or mental health condition or disability expected to last at least 12 months, and face difficulties performing everyday tasks or moving around. The Department for Work and Pensions, which administers the benefit, assesses eligibility through a points-based system evaluating the claimant’s ability to manage daily activities and mobility. The program does not vary payments by income.

In 2025 and assuming our standard behavioural responses, we estimate that the government will spend £30 billion on PIP payments, affecting the household incomes of 10.3% of people. These payments increase the incomes of the bottom half of the income distribution by more than 1%, and increase the income of the lowest income decile by 17%.

Impact by decile

We estimate that PIP lowers the absolute, before housing costs (BHC) poverty rate by 1.3pp (884,000 people), and the deep absolute BHC poverty rate by 0.5pp (340,000 people).

Poverty impact

We estimate that PIP increases (by over 5%) the net income for 10% of the population, and around 23% of the lowest income decile.

Outcomes by decile

By applying our standard behavioural assumptions, we estimate that PIP reduces earnings by £288 million in 2025, 0.02% of total UK earnings, equivalent to around 7,800 full time jobs at the UK average wage.¹ By comparing this to no behavioural assumptions, we find that this translates to a £102 million reduction in tax revenues and a £25 million increase in other benefit spending; that is, behaviour increases the cost by 0.4%.

We also find that PIP reduces income inequality (as measured by the Gini coefficient of net household income) by 2.8%.

By keeping PIP levels the same in FY 2025/26, PolicyEngine estimates that the government would raise £464 million over that time period. These impacts would affect the household incomes of 9.7% of people and reduce the incomes of the bottom half of the income distribution by between 0.05% and 0.1%.

Impact by decile

The freeze of PIP rates would affect around 17% of the third and fourth deciles, and between 5% and 10% of the remaining deciles.

Outcome by decile

The reform would not affect poverty rates by more than 0.1pp, and would raise income inequality slightly (by 0.04%).

nikhil woodruff
PolicyEngine's Co-founder and CTO

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