John Healey expected to hand ‘billions’ to benefits claimants in Budget

Labour sources have told the Daily Mail that Mr Healey has set aside “£5.5billion to support a 3.5 per cent increase to benefits”, paid to 10 million people.

Official projections suggest the sickness benefits bill will jump to £109billion by the end of the decade.

Ministers have said they cannot act on calls for welfare reform until major reviews on youth unemployment and disability benefits are published in the coming months.

The Timms Review is set to ensure that Personal Independence Payment (PIP) is “fair and fit for the future in a changing world”.

Led by Sir Stephen Timms, Minister for Social Security and Disability Sharon Brennan and Dr Clenton Farquharson CBE will submit their report to the Secretary of State for Work and Pensions this autumn.

The Milburn Review on Youth Economic Inactivity, led by Alan Milburn, will investigate the rising number of young people aged 16 to 24 who are Not in Education, Employment, or Training (Neet).

The current UK figure for Neets is estimated at around 960,000.

Supporting both reviews, Prime Minister Andy Burnham has said he is determined to “fundamentally rethink” the welfare system.

He said: “We await the final report from Alan Milburn’s review. But I can say now we will change the education system and the welfare system.

“We will need a fundamental rethink of the welfare system to find the money for these opportunities upfront.”

Writing in The Times about the Neet figures, he made clear: “One million young people. One in eight. Neither earning nor learning.

“A generation being denied its chance to get on in life. This is an economic catastrophe and a moral failure. And it must change.”

Britain’s benefits bill is forecast to balloon by a £5.5billion by next year after inflation soared under Labour in September.

The figure is £2.2billion more than the Treasury has budgeted for, as set out in the Office for Budget Responsibility’s pre-Budget forecasts.

Welfare spending is on track to soar to around £160billion this year alone.

A spokesman for the Department for Work and Pensions has previously said: “We want to build a welfare system that incentivises work and supports those who need it most, but the system we inherited denied people the support and opportunities they need to move into work.

“We are already changing the system through the Youth Guarantee, narrowing the gap between Universal Credit standard and health rates, restoring face-to-face assessments, and investing a record £3.5billion in employment support for disabled people and those with long-term conditions.

“The Secretary of State for Work and Pensions is required by law to undertake an annual review of the State Pension and working-age benefits, and final figures will be confirmed once this is finished.”