Where can the government cut billions from the welfare budget?
Chancellor Rachel Reeves has earmarked "several billion pounds" in draft spending cuts to welfare ahead of her Spring Statement, according to the BBC.When asked about the welfare budget, the Justice Secretary, Shabana Mahmood said: "Our current situation is unsustainable… we've seen a huge rise in that welfare budget."BBC Verify has examined this budget and where the cuts might fall.
How big is the welfare budget?
Before looking at where the welfare budget might be cut, it is necessary to understand the size of the budget and how it has grown.At the time of the October 2024 Budget, the Office for Budget Responsibility (OBR) forecast that total spending on health and disability benefits would rise from £64.7bn in 2023-24 to £100.7bn in 2029-30.
And the OBR projected that the biggest contributor to this increase would be from welfare spending on working-age adults, defined as those aged between 16 and 64.The OBR projected spending on this sector would rise from £48.5bn in 2023-24 to £75.7bn in 2029-30.
Why is the welfare bill growing?
The OBR cited rising numbers of people coming on to incapacity and disability benefits as driving its latest forecasts.The forecaster is essentially assuming the trend of rising benefits claims in recent years will continue.In the five years after 2009-2010, more people were coming off incapacity benefits than on.
But in recent years - and especially since the 2020-21 Covid pandemic - more people have been coming on to benefits than off them.And the OBR forecast the share of the working-age population in receipt of an incapacity benefit would rise from 7% in 2024 to a record high of 7.9% in 2029.The reasons for this are not totally clear.Some experts point to the damaging and lasting impact of the pandemic on physical health.Others reference the rise in mental ill health, especially among younger people.The Office for National Statistics (ONS) has reported that the number of people aged 18 to 24 who are not in education, employment or training (Neet) rose to 907,000 at the end of last year, a 30% increase on the level before the pandemic in 2020 (although the ONS also cautioned the survey used to collect the data was potentially unreliable).Other experts place the emphasis on financial incentives in the welfare system - where people can get higher payments for being on sickness benefits than from being unemployed or in low-paid, part-time work.The standard allowance for a single person on Universal Credit is £311.68 per month. If someone is deemed to have "limited capacity for work-related activity", the criteria to receive incapacity benefits, they are eligible for an extra £416.19 per month on top.But there is no consensus on what's causing the trend."It is not yet known what factors are driving this increase," says Eduin Latimer of the Institute for Fiscal Studies."Figuring out what is behind the recent rise must surely be a top priority for the government if it is going to be able to respond appropriately."
Which elements of the welfare bill might be cut?
Ministers have not said where they will seek cuts, but the largest element of the working-age welfare bill is incapacity or long-term sickness benefits - paid via Universal Credit or the legacy system of Employment and Support Allowance.If the government wants to make significant savings from the working-age welfare bill it will probably need to find some savings here.But the second largest single element of the working-age welfare bill is Personal Independence Payments (PIP) - a benefit for people under state pension age who need help with daily activities because of a long-term illness or disability. PIP claimants can be in work.In 2023-24, PIP totalled £18bn and that's projected to almost double to £34bn by 2029-30. That would mean the number of claimants rising from 2.7 million to 4.2 million.As with the rise in the overall welfare bill, there's no consensus among experts on what's driving rising PIP claims, but this is also somewhere the government might well look to make some savings.The previous Conservative government had explored making it harder for younger people with mental health conditions to claim PIP.
Can significant savings be made?
Many experts, such as the Resolution Foundation think tank and the Institute for Employment Studies, agree that more working-age people should be helped and encouraged into work, and that there is a case for reform of the working-age welfare system.But some argue that making sustainable, long-term savings requires upfront government investment in employment support programmes - schemes which aim to help people overcome barriers to getting into work.Analysts also warn that reducing spending on the welfare bill has been historically difficult.At the 2015 general election, the Conservative manifesto promised to cut £12bn from the annual welfare budget.While some significant savings were initially found, ministers were forced to change policy after a political backlash over some of the cuts.The OBR later concluded £4bn of the £12bn a year promised cuts had not been achieved.
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