Keir Starmer’s government is aiming to cut billions of pounds from welfare spending before the spring statement.
How much does the government spend on welfare?
Welfare spending has ballooned in recent years to support Britain’s ageing and increasingly unwell population.
Total welfare spending was about £296bn in 2023-24, and is forecast by the Office for Budget Responsibility (OBR) to reach almost £378bn by the end of the decade. The bulk of the money is spent on pensioners – at £142bn in 2023-24.
However, spending on health-related benefits for working-age adults has risen sharply in recent years, and since the Covid pandemic in particular. The bill for 16- to 64-year-old incapacity benefits – sometimes known as sickness benefits – which are means-tested, and for disability benefits, which are not, was about £48bn in 2023-24, and is forecast to hit almost £76bn by 2030.
What is behind the rising welfare bill?
There are two main drivers contributing to 90% of the increase in welfare spending between now and 2030.
First, an ageing population and the government’s triple lock – which guarantees a rise in the value of the basic and new state pension every year by the highest of earnings growth, inflation, or 2.5%.
Second, rising caseloads for health and disability benefits.
Multiple factors lie behind the rise in health-related benefit claims, but experts agree Britain has generally become an increasingly unwell nation in recent decades – with a sharp rise in mental health problems in particular.
As many as 8.2 million working-age people have work-limiting health conditions – not just among benefit claimants – and each year more than 300,000 people leave their jobs and end up leaving the workforce entirely, according to the Health Foundation.
Levels of obesity and diabetes have risen sharply, while the proportion of working-age households with at least one disabled adult has risen over the past decade, according to the Resolution Foundation. Over a similar time period, reported mental health problems have also jumped from 8% to 10% of working-age people to between 13% and 15%, according to the Institute for Fiscal Studies.
The rapid growth in health-related benefit claims has not been matched in other rich economies. That could mean the UK had a particular large health shock – perhaps linked to record NHS waiting lists and crumbling public services.
The UK also has comparably low levels of basic unemployment support and more demanding job-search requirements. Amid the cost of living crisis, that could incentivise claimants to seek health-related entitlements.
While spending on health-related benefits for non-pensioners has increased from 1.2% of GDP in 2005-06 to 2.2% in 2025-26, this has largely been offset by falling spending on other benefits for this age group – from 3.5% to 2.8% over the same time period.
Overall, the level of spending on benefits for this group has remained roughly steady at about 5%.
Why does Labour want to reform welfare?
Labour’s aim is to get more people into work and to save money on the benefits bill.
There are three driving forces: the public finances, the economy, and politics.
Reeves is pushing to find £6bn savings from welfare before the 26 March spring statement to ensure her fiscal rules are met. However, Liz Kendall, the work and pensions secretary, is pushing to recycle some of the savings into job support.
Britain is one of the few countries in the developed world with an employment rate lower than before the pandemic, after a sharp rise in the number of adults leaving the labour force because of long-term sickness.
Official figures show economic inactivity – when working-age adults are neither in a job or looking for work – has ballooned to about 2.8m, close to a record high. Getting more people in a position to work would help employers to recruit, supporting Labour’s ambitions to grow the economy.
Last year, the Institute for Employment Studies estimated the economy would have been £25bn a year larger and the public finances £16bn a year better off if Britain had maintained its pre-Covid employment levels. Fixing the nation’s health could save the NHS £18bn a year by the mid-2030s, according to the IPPR thinktank.
Getting more people into work would also help save money on the benefits bill, in a virtuous circle for the economy and public finances. The big debate is how the government drives this change.
For Starmer there is also a political dimension. The prime minister argues a “deep British value” is that if somebody could work, they should – drifting on to typically centre-right political ground, and leaning into opinion polls showing that voters think benefits eligibility is not strict enough.
What changes could be made?
Labour has already vowed to cut £3bn over the next three years and is expected to announce billions more in savings from the personal independence payment (Pip), the main disability benefit.
One option could be to freeze the uprating Pip awards with inflation – an approach even George Osborne avoided while freezing many other benefits for four years. The centre-right thinktank Policy Exchange, in a report backed by former Labour work and pensions secretary David Blunkett, has also suggested making Pip conditional for 16- to 30-year-olds.
Reforms to universal credit eligibility could also be pursued, according to details first reported by ITV. This could include raising the basic rate for those searching for work, while cutting the rate for those judged unfit for work.
Labour is, however, facing a backlash from charities, campaigners and MPs on its back benches, as benefit cuts would hit the poorest and most vulnerable in society hardest.
The Joseph Rowntree Foundation says 900,000 children live in a household where someone receives sickness benefits though universal credit (UC).
Its research showed almost half of adults in a household where someone claims health-related UC are also in a household without reliable access to enough affordable, nutritious, healthy food, compared with 11% of all working-age adults.
Some experts also warn that cutting benefits would have a limited effect on driving up employment. Earlier this week, the Commission for Healthier Working Lives concluded that extra job and health support would save more than it would cost, with savings of up to £1.1bn over five years.