Rachel Reeves will seek to make around £3 billion of cuts to welfare over the next four years by restricting access to sickness benefits, it is understood.

The Chancellor is expected to commit to the previous Tory government’s plans to save the sum by reforming work capability rules, as first reported by The Telegraph.

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.

Liz Kendall
Work and Pensions Secretary Liz Kendall (Ben Whitley/PA)

It is understood that Ms Reeves will commit to the plan to save £3 billion over four years, but Work and Pensions Secretary Liz Kendall will decide how the system will be changed in order to achieve this.

A Government spokesperson said: “We have always said that the Work Capability Assessment is not working and needs to be reformed or replaced alongside a proper plan to support disabled people to work.

“We will deliver savings through our own reforms, including genuine support to help disabled people into work.”

Ms Reeves is looking to raise up to £40 billion from tax hikes and spending cuts in the Budget as the Government seeks to avoid a return to austerity.

Sir Keir Starmer on Thursday faced a Cabinet backlash over the planned measures, with several ministers writing to the Prime Minister directly to express concern about proposals to reduce their departmental spending by as much as 20%.

Downing Street warned that “not every department will be able to do everything they want to” and “tough decisions” would have to be made.

The Prime Minister’s official spokesman confirmed Sir Keir and Ms Reeves have agreed on the “major measures” of the Budget, including the “spending envelope” that sets out limits for individual Whitehall departments.

While some spending cuts are all but inevitable, tax rises are expected to form the centrepiece of Ms Reeves’ plans to fill what the Labour Government calls a “black hole” in the public finances left behind by its Tory predecessors.

Reports suggest capital gains tax and inheritance tax are among some of the levers the Chancellor will pull to raise revenue as she seeks to put the economy on a firmer footing.

The Budget will be delivered on October 30.

The Chancellor will hold talks with City bosses on Friday at the first meeting of Labour’s British infrastructure taskforce, as the Government seeks advice on how to boost investment in the UK.

Finance chiefs from HSBC, Lloyds and M&G will be among those involved in the discussions, which the Treasury says will take place regularly.

Ms Reeves said their expertise will be “invaluable in the weeks and months ahead” as the Government pursues its “number one mission to grow the economy and create jobs”.

Chief Secretary to the Treasury Darren Jones said the taskforce would aim to end “the cycle of underinvestment that has plagued our infrastructure systems for over a decade.”