An influential cross-party committee in Westminster has warned that Britain's disability benefits system must be overhauled if Labor wants to curb rising health-related benefit spending.

The House of Lords Economic Affairs Committee, whose members include two former finance ministers and a former chancellor, said major reforms were needed to address the rising social and fiscal costs of disability benefits.

The committee's chairman, Conservative MP George Bridges, told the Guardian the government must "step back and conduct a fundamental review of the welfare system" and not just pursue "so-called savings".

The committee's comments come as disability campaigners and Labor backbenchers grow increasingly concerned about the chancellor's insistence on sticking to inherited Conservative plans to cut disability benefits by £3 billion by 2028.

Dramatic cuts to benefits will cause severe financial hardship for hundreds of thousands of claimants, making clear in a High Court ruling last week which found the previous government's consultation on changes to incapacity benefits was unlawful.

The ruling said the consultation, which the current government defended in court last December, was misleading because it described the changes as a way to support disabled people in employment but failed to make clear the impact of 424,000 vulnerable claimants. Benefits will be reduced by £. 416 a month.

Internal estimates provided to the court by the Department for Work and Pensions (DWP) suggested that 100,000 vulnerable claimants would be pushed into poverty as a result of the changes. Separate analysis suggests that only a small proportion of claimants who would suffer losses as a result of the proposed cuts are likely to remain in work.

The Treasury is alarmed by the rapid increase in expenditures on Incapacity Benefit claimed by people who are unable to work due to health or disability, and on Personal Independence Payment Disability Benefit to help disabled claimants meet their additional living costs.

Spending on incapacity and disability benefits has grown rapidly in recent years, from £52bn five years ago to £65bn in 2023-24. The Office for Budget Responsibility predicts spending will rise to £100 billion by the end of this decade.

In a letter to work and pensions secretary Liz Kendall, the House of Lords economics committee urged an overhaul of an "unsustainable" system that incentivizes people on low incomes to claim incapacity benefits and then and inhibit them from returning to work.

"Reform is needed to curb the growing fiscal burden and address the growing social costs of hundreds of thousands of people relying on benefits... We urge the government to accelerate its plans to reform health-related benefits," the report said.

The DWP is expected to publish a green paper consultation on the proposed changes in the coming weeks. Ministers have promised a new approach, but there are fears the Treasury's £3bn savings target will prioritize short-term benefit cuts at the expense of a more measured and strategic approach.

Welfare experts believe a strict savings scheme due to start in September gives the welfare system too little time and the reforms could minimize the financial impact on vulnerable claimants and provide savings over a longer period.

"Labour is in a tight position with very little room for maneuver. Eventually they may have to restrict benefit eligibility (for sick and disabled people), which is not a very attractive target group for a Labor government. The best Labor can do One of the worst things to do is lose the trust of the disabled community,” one person said.

The government said it was committed to treating claimants with dignity and respect, insisting that the views and voices of disabled people and their long-term health conditions would be "at the heart of appropriate plans to help disabled people who are able to work access employment opportunities, while ensuring Provide support to those in need.”

A government spokesman said: "We have been clear that the current welfare system needs reform so that it is fairer for taxpayers and so that people get the support they need to find employment."

The Royal National Institute for Blind People said the previous government's approach had caused "huge anxiety" for many blind and partially sighted claimants. “At the heart of any reform should be the wellbeing of applicants, not cost savings,” said Vivienne Francis, the charity’s chief social change officer.

Ayla Ozmen, policy director at anti-poverty charity Z2K, said the cuts would undermine ministers' commitment to tackling child poverty. "Currently, more than 70 per cent of food bank users are disabled people. A quarter of those currently receiving these benefits have children," she said.