Chancellor John Healey has abandoned plans to check Universal Credit claimants’ savings before benefits are paid, prompting accusations that Labour has surrendered on welfare reform while hardworking taxpayers face an ever-growing bill.
Chancellor John Healey has scrapped a proposed crackdown on welfare fraud, abandoning plans to verify the bank balances of Universal Credit applicants before payments are made, despite warnings that the decision could cost taxpayers millions of pounds.
The move represents another embarrassing retreat for Labour, which is already struggling to demonstrate how it intends to control Britain’s ballooning welfare bill while protecting taxpayers from fraudulent claims.
The abandoned scheme was originally announced by former Chancellor Rachel Reeves in her 2025 Spring Statement. It would have allowed the Department for Work and Pensions (DWP) to verify applicants’ savings through Open Banking or face-to-face checks, helping identify individuals claiming benefits despite holding more money than the rules permit.
Under Universal Credit regulations, claimants are generally ineligible if they have more than £16,000 in savings and other assessable capital. Those with between £6,000 and £16,000 have their payments reduced, although certain exemptions apply.
The original proposal was expected to save approximately £200 million by 2030 through the prevention of fraudulent or incorrect payments.
However, according to The Telegraph, Treasury estimates indicate that abandoning the scheme could cost taxpayers an additional £5 million this financial year and £10 million next year.
For a Government supposedly committed to restoring fiscal responsibility, abandoning a measure designed to prevent public money being paid to ineligible claimants raises serious questions about Labour’s priorities.
Rather than checking applicants’ savings before approving their benefits, the Government is relying on a different system under which banks identify accounts that meet specified eligibility indicators and pass limited information to the DWP.
The replacement, known as the Eligibility Verification Measure, was introduced under the Public Authorities (Fraud, Error and Recovery) Act 2025, with the first formal notice issued to financial institutions on 26 October 2026.
The Government insists the new approach will be more effective because, unlike the abandoned Open Banking proposal, it does not depend on claimants agreeing to share their information.
However, the change raises an obvious question: why should potentially ineligible claims be allowed to result in payments before relevant bank information is checked?
Critics fear the revised approach could leave taxpayers exposed to fraudulent claims at the point of application, with officials forced to identify and recover money after it has already been paid.
The controversy comes as Labour faces increasingly uncomfortable questions over its wider welfare strategy.
Prime Minister Andy Burnham acknowledged on Friday that his forthcoming welfare reforms would not deliver reductions in the benefits bill for at least three years.
That admission is particularly damaging for a Government already presiding over substantial increases in projected welfare expenditure.
According to the Office for Budget Responsibility’s October 2026 forecast, annual welfare spending is expected to rise from approximately £353 billion in 2026/27 to £431 billion by 2031/32.
That represents an increase of almost £79 billion, although the figures include state pensions, which account for roughly half of overall welfare expenditure.
Nevertheless, the scale of the projected rise places enormous pressure on ministers to explain how they intend to make the system sustainable.
With taxpayers already facing significant financial pressures, Labour’s inability to demonstrate meaningful savings from its welfare reforms is becoming an increasingly serious political liability.
The Conservatives have accused the Government of effectively surrendering on the issue.
Helen Whately, the Shadow Work and Pensions Secretary, said Labour had failed to deliver the changes necessary to prevent the benefits system becoming an even greater burden on working households.
She warned that millions of people remained dependent on benefits while taxpayers were being asked to fund an increasingly expensive system.
The criticism comes ahead of further welfare proposals expected from the Government next year, including measures aimed at helping young people move from benefits into employment or education.
Former Labour Health Secretary Alan Milburn is preparing recommendations examining youth employment programmes, including schemes operating in Germany and Denmark.
However, proposals to introduce similar levels of employment support in Britain could carry substantial additional costs. Analysis reported by The Telegraph suggests matching those countries’ spending levels could require around £6 billion annually.
That creates another uncomfortable dilemma for Burnham’s Government: spending billions more on programmes intended to reduce welfare dependency while acknowledging that the overall benefits bill will continue to grow.
Meanwhile, the Government’s decision to abandon its original bank verification scheme has also attracted attention because of separate proposals to give energy companies access to certain financial information about their customers.
The Telegraph reported on Sunday that ministers were considering arrangements allowing energy suppliers to examine income, tax and property information.
The apparent contrast will inevitably invite questions about why Labour is prepared to contemplate wider financial information-sharing in one area while abandoning an additional safeguard against potentially incorrect benefit claims.
The DWP has defended its revised welfare fraud strategy, arguing that the original Open Banking proposal would have relied upon claimant consent and could not have been applied consistently across all Universal Credit applications.
A department spokesman said the replacement system would require banks and financial institutions to provide information where accounts met specified criteria, allowing officials to identify potential incorrect payments.
Ministers estimate the Eligibility Verification Measure will save approximately £1.2 billion by 2030/31.
Importantly, the new system does not give DWP officials unrestricted access to people’s bank accounts, transactions or spending habits. Banks provide limited information when specified criteria are met, and officials must conduct further checks before making decisions about benefit entitlement.
The Government therefore maintains that it is strengthening rather than abandoning its wider efforts to combat fraud.
Yet the central political problem remains.
Labour has discarded a proposed preventative check at the point of application, its Prime Minister has acknowledged that welfare reforms will not deliver immediate reductions in spending, and official forecasts show the overall bill continuing to rise dramatically.
The replacement fraud detection system may eventually deliver substantial savings, but ministers will still have to demonstrate that it can prevent losses as effectively as it identifies incorrect payments.
For hardworking taxpayers expected to fund Britain’s increasingly expensive welfare state, promises of future savings are unlikely to be enough.
With Healey abandoning one proposed safeguard and Burnham conceding that meaningful reductions in the welfare bill remain years away, Labour faces a growing challenge to convince the public that it has either the determination or a credible plan to bring spending under control.
