Work and Pensions Secretary Liz Kendall has warned the benefits system could collapse after a massive Labour rebellion forced her to scrap plans to limit disability payments. She said she was still determined to cut the soaring welfare bill, with the cost of Personal Independence Payments (PIP) set to top £35 billion by 2027 as more than 1,000 people sign up for the benefit every day.

Ms Kendall said: “We need to make sure that this absolutely crucial benefit is sustainable for the future. A doubling of the number of people on PIP over the last decade, if that were to continue into the future, my real concern is that the benefit, which is absolutely vital for people, wont continue in future.”

The Government attempted to introduce new rules making it harder to claim PIP, which helps disabled people with living costs, in order to save £4.1 billion. The proposals would have meant 800,000 people lose an average of £4,500 annually, but they sparked fury among Labour backbenchers as well as campaign groups, with charity Scope calling them “disastrous”.

Ministers first watered down the plans before delaying them indefinitely.

Social Security and Disability Minister Stephen Timms will now lead a review of PIP, involving disabled people and organisations that represent them, along with experts and MPs.

Ms Kendall insisted she was still committed to cutting the benefits bill when she was questioned by the Commons Work and Pensions Committee, which is chaired by Labour MP Debbie Abrahams, one of the leaders of the backbench revolt.

Under the current system “people are almost incentivised to define themselves as incapable of work,” she said.

“We have to have a much more pro-active, pro-work system.”

The Work and Pensions Secretary admitted her department had suffered “a bumpy ride over the welfare legislation” but said the cost had to come down. She said: “That is extremely difficult to shift, because people rely on those benefits, and they’ve built their lives around them.”

The number of people awarded PIP has shot up since the Covid pandemic from 13,000 a month to 34,000 a month. It means that around 408,000 people every year start receiving the benefit.

The surge has been largely by driven by a substantial increase in the number of people who report anxiety and depression as their main condition, according to the Department for Work and Pensions. Almost one in ten people of working age are now claiming a sickness or disability benefit of some kind while the cost of all working age disability and incapacity benefits is up £20 billion since the pandemic, and due to reach £70 billion a year by 2029.

Ms Kendall warned that the current system was bad for people who depended on benefits when they could be working, and also bad for the economy. She said: “Businesses increasing are worried about the costs of people going off long term on sick.”

She insisted: “Where we have ended up is a good position, where we will make sure we work with disabled people, the organisations who represent them, to take a really good long term look at this benefit. To make sure it really is there for those who need it ... that it actually, genuinely is there for people who need it in future and takes into account the big changes we have seen, in disability, in society, in the world of work, since PIP came into place over a decade ago.”

But she came under fire from Liberal Democrat MP Steve Darling, who is registered blind, who demanded to know why people with disabilities had not been consulted about the cuts.

Ms Kendall said she had consulted with Parliament. She told the Committee: “We were consulting obviously with Parliament about that. We are not ignoring disabled people, they will be at the heart of the Timms review.”