Welfare Cap Breach Response

Wednesday 29th January 2025 Written Statements

[The Secretary of State for Work and Pensions (Liz Kendall)]

The Office for Budget Responsibility has made a formal assessment that the previous Government’s welfare cap and margin for 2024-25 is on course to be exceeded by £8.6 billion and is therefore not met. Under the terms of the charter for budget responsibility, I am required to lay a paper before the House proposing measures to reduce spending to within the level of the cap or to explain why the breach is considered justified.

The forecast breach, due in particular to expected higher expenditure on universal credit and disability benefits, is unavoidable given the inheritance from the last Government.

The likely scale of the eventual breach has been known since March 2023. No action was taken by the previous Administration to avoid it. While this Government have already shown that they will not shy away from difficult decisions, this breach could only have been addressed through implementing immediate and severe cuts to welfare spending. This would not have been the right course of action.

The forecast breach underlines the previous Government’s failure to control welfare spending and failure to bring forward genuine reform to get more people into work. It is a result of the previous Government’s legacy of low growth and high inflation, which is driving the cost of living crisis felt by so many. Additionally, growing levels of economic inactivity, exacerbated by the pandemic but never gripped by the last Government, have led to a higher-than-forecast rise in benefit spending, particularly on universal credit and disability benefits. It is a symptom of a failed approach to employment support and a broken health and disability benefits system that does not incentivise or support people who could work into work and is not geared up to deal with the fact we are an older, less healthy nation. It is also a symptom of previous failures to think across public services and to establish shared goals across health, training and skills and social security.

The UK is the only G7 country whose employment rate has not returned to pre-pandemic levels. A total of 2.8 million people are locked out of the workforce due to poor health. Millions are stuck in low-paid, insecure work. Some 420,000 more households are predicted to claim universal credit health benefits by the end of the decade, increasing from a third to a half of all universal credit claims. Nearly one in eight of all our young people are not in education, employment or training. All of this has contributed to a higher welfare bill and the breach of the welfare cap.

It is not just the economic cost of this failure that is unacceptable, but also the human cost to individuals and communities denied the opportunity to improve their living standards through work.

That is why, with our ambition to achieve an 80% employment rate, we are delivering radical reforms to drive up employment and living standards, getting a grip of the benefits bill and making the system fairer.

Our “Get Britain Working” White Paper is transforming the DWP from a Department for welfare into a Department for work and devolving funding and powers to mayors and local leaders to drive down economic inactivity in their areas.

In the spring, we will bring forward a Green Paper on reforming the health and disability benefits system to put spend on a sustainable footing and ensure disabled people and those with health conditions have the same rights as everybody else, including the right to work. We will shift the focus to early intervention to support people into work and respond to the complex and fluctuating nature of today’s health conditions.

Alongside these radical reforms, we are also bringing forward the biggest welfare fraud and error package in recent history, including our new, recently announced powers to identify, prevent and deter fraud in the welfare system.

Our welfare system does not exist in isolation. Much of the increase in welfare spending is influenced by wider policies such as health, housing and education. For this reason, my Department will be working across Departments to deliver our key goals, including creating a more sustainable welfare system.

The new charter for budget responsibility establishes a new welfare cap for this Parliament and the Department will, later this year, also publish a new annual report on welfare spending, which sets out the Department’s plan to ensure welfare spending is on a sustainable path as well as progress against the cap.

This Government are committed to working more closely between Departments on common goals, particularly supporting people into work, safeguarding taxpayers’ money and delivering value for money for every pound, which is why we are building a fairer and more sustainable social security system.

[HCWS398]