The Chancellor has promised a “crackdown” on fraud in the welfare system but the Government’s plan to carry on with benefit reforms previously announced by the Conservatives to save £3 billon has been branded “bitterly disappointing”.

Rachel Reeves said she wants to ensure welfare spending is “more sustainable”.

Labour has previously said fraud and error in the social security system costs the Government almost £10 billion a year.

Chancellor Rachel Reeves holding up red ministerial box
Chancellor Rachel Reeves announced a crackdown on fraud (Lucy North/PA)

A report in July from the Department for Work and Pensions (DWP) said society’s attitude to fraud was “softening” with the effects being felt in the billion-pound benefits system.

The £266.1 billion welfare budget “is a deliberate target for both organised crime groups and opportunistic individuals”, the department’s annual report warned.

On Wednesday, the new Labour Government’s first Budget stated that its package of measures to tackle fraud would save £4.3 billion a year by the end of 2029-30.

Ms Reeves said: “I can today announce a crackdown on fraud in our welfare system often the work of criminal gangs.

“We will expand DWP’s counter-fraud teams using innovative new methods to prevent illegal activity and provide new legal powers to crack down on fraudsters, including direct access to bank accounts to recover debt.”

The Government also said it would set out reforms to health and disability benefits in the early part of next year “to ensure the system supports people who can work to remain in or start employment, in a way that is fair and fiscally sustainable”.

Ms Reeves told the Commons her party had “inherited the last government’s plans to reform the work capability assessment (WCA)” and pledged to “deliver those savings as part of fundamental reforms to the health and disability benefits system”.

Under Conservative proposals, welfare eligibility would have been tightened so that around 400,000 more people who are signed off long term would be assessed as needing to prepare for employment by 2028/29, reducing the benefits bill by an estimated £3 billion.

The Government’s £240 million “Get Britain Working package” had already been announced ahead of Budget day, with the Treasury saying it would include work, skills and health support for disabled people and long-term sick.

The Joseph Rowntree Foundation, a social change organisation, said the Government had “failed to explain how they will save £3 billion from the benefits bill” meaning those on welfare have been left with “no certainty and more anxiety rather than the respect they deserve”.

Disability charities including United Response, which supports people with learning disabilities, autistic people and those with mental health needs, accused Labour of carrying on a negative rhetoric on welfare.

Sapphire Beamish, its head of communications, said: “It is a poor decision to continue the rhetoric around tightening work capability assessments alongside a ‘crackdown on fraud’.

“The negative framing on welfare continues to inflict stigma and increase the worry for people with a learning disability who are left feeling let down that the focus is on saving money over supporting disabled people.”

James Taylor, executive director of strategy at disability equality charity Scope, welcomed investment in localised employment support for disabled people, but added: “Bringing in changes based on savings, not on supporting disabled people, will be disastrous.”

He added: “Ramping up restrictions won’t help support more disabled people into work, it will only make their lives harder”.

With detail on the reforms not expected until 2025, he said “disabled people are yet again in the dark about the future of the benefits system, creating a huge amount of anxiety”.

Richard Kramer, chief executive of Sense, said the decision to go ahead with the previous government’s reforms was “deeply disturbing for disabled people” and “risks undermining the wellbeing of disabled people” with potentially “devastating” consequences.

Anti-poverty charity Z2K described the decision as “bitterly disappointing” as they expect disabled people living in poverty to “bear the brunt of these cuts”.

The charity said: “The government said it wants to restore trust between the DWP and disabled people. But by returning to the same old failed approach of cutting benefits, it is seriously endangering these efforts before they have even got started.”

Also on Wednesday, the Work and Pensions Secretary Liz Kendall, in a written statement, confirmed benefit rates including universal credit would be increased by 1.7% from April across Great Britain, in line with the increase in the consumer prices index (CPI).

She said local housing allowance rates and the benefit cap for the next financial year will be frozen at their current levels.

Chief Secretary to the Treasury Darren Jones also confirmed, in a written statement, that child benefit rates will rise across the UK from April, in line with CPI.

This will bring the rate for the eldest child to £26.05 per week, from £25.60, and for other children to £17.25 per week from £16.95.

Meanwhile, an increase to the Carer’s Allowance weekly earnings limit to the equivalent of 16 hours at the National Living Wage – described by Ms Reeves as the largest increase since the allowance was introduced in 1976 – has been welcomed by charities.

The new limit, meaning a carer can now earn more than £10,000 a year while receiving the allowance, will allow some 60,000 more carers access to the financial help, the Government said.

The Carers Trust said the move offers hope to many, and insisted it must be among “the first steps towards a desperately needed overhaul of this totally inadequate benefit”.