Welfare Spending to Rise £79bn as Government Weighs Options to Curb the Benefits Bill

The government has said it wants the benefits bill to come down, but after Wednesday's Budget it has not said when. Chancellor John Healey and Prime Minister Andy Burnham have both spoken of that aim. Their opponents say the Budget offered little detail on welfare reform and accuse ministers of putting off hard decisions on cuts.

The forecasts published alongside the Budget give the argument its backdrop. The Office for Budget Responsibility, the official forecaster, expects welfare spending to rise by £79bn in cash terms over the next few years: from £353bn this year to £431bn in 2032. Pensioners account for just under half of that total, most of it the state pension.

Measured against the size of the economy, the picture is calmer. The OBR projects welfare moving from 11.1% of GDP today to 11.3% in 2032. That stays below the peak of around 12% in 2013, after the global financial crisis, which has led some economists and researchers to question whether spending is out of control.

Some parts of the system are growing fast, though. Health and disability benefits, Personal Independence Payments (PIP) in particular, have climbed sharply since the Covid-19 pandemic. After inflation, spending on working-age disability benefits rose from £14bn in 2020 to £25bn in 2026. Total inflation-adjusted spending still sits below its 2013 level because Conservative-led governments cut other working-age benefits, including Universal Credit and housing benefit, under austerity from 2010. Some researchers think those cuts gave people a reason to claim sickness and disability benefits instead, protecting their living standards. If so, costs moved around the system rather than falling for good.

Young people are a particular concern. The number of 16 to 24-year-olds not in employment, education or training, known as Neets, has risen by about 230,000 since 2019 to just under one million. Former Labour health secretary Alan Milburn is leading an official review of the issue and is expected to recommend major reforms to move many of them off benefits and into work. His interim report in May estimated that annual PIP spending on 16 to 24-year-olds rose from £1.3bn in 2020 to about £3.2bn in 2025. It projected £6.5bn, covering 700,000 young people, in five years. PIP claimants can work, but official statistics show only around one in five do.

What "cutting" would mean is often left unclear. In March 2025, the government of former prime minister Sir Keir Starmer set out a plan it said would save £5bn a year from health-related welfare by 2030, by tightening PIP access and reducing the value of health-related Universal Credit payments. Official forecasts still showed cash spending on health-related welfare rising after the reform, only more slowly. The OBR did say the plan would put overall welfare spending on a "slightly downward trajectory" as a share of the economy over the medium term, instead of staying flat. A relative reduction of that kind, rather than an absolute cut, may be what the government aims for.

More options are coming. Milburn's final report is expected in the coming weeks, along with a separate final report from disability minister Stephen Timms on PIP reform. There has been speculation that they could propose a new system for under-25s, who would not be eligible for PIP and would receive lower payments than older claimants. Timms may also suggest a new PIP eligibility test to reduce access, though he was not specifically told to find savings.

Such changes could save money against the current upward path and reduce welfare as a share of GDP. But some analysts argue that lasting savings would require much more spending to help young people get into work and stay there. Milburn's interim report noted that for every £1 spent on employment support for young people, about £25 goes on benefits, which hints at a large increase in welfare-to-work funding. In the near term, savings could be offset by extra spending in other departments. In the longer term, effective employment support could still bring the bill down.