Is welfare spending ‘out of control’?

The run up to this Budget has seen more than its fair share of rumours, leaks, briefings and counter-briefings. But if there’s one thing we know for sure, it is that tax rises are coming. The public finances have deteriorated since the Spring Statement; there have been high profile U-turns on cuts to Winter Fuel Payments (WFP) and health and disability benefits; and it is widely expected that the OBR will downgrade its forecast for future productivity growth. The Chancellor has an unenviably large fiscal hole to fill.

But is there an alternative to raising taxes? Many opposition parties are arguing that the welfare budget be cut instead, and that a key reason for the imminent tax rises is that welfare spending has spiraled out of control in recent years. So, is profligate welfare spending to blame for the fiscal hole the Chancellor must confront? And could Reeves simply cut welfare spending instead of raising taxes?

An effective social security system should smooth families’ incomes across their lifetimes and protect people from falling into poverty, and to do this it must broadly keep up with wider living standards. We capture this idea in Figure 1, where spending on social security is shown as a share of GDP. As this makes plain, total welfare spending in Britain in 2025-26 is estimated to be 10.8 per cent of GDP. This is 0.8 per cent of GDP higher than it stood on the eve of the global financial crisis in 2007-08. But since 2012-13 (the peak in the post-GFC recession), total welfare spending has fallen by 1.2 per cent of GDP. Added to this, welfare spending is expected to rise by just 0.1 per cent of GDP across the forecast period until 2029-30 (after U-turns and before any decisions made at the Budget).

But we live in a country where it is reasonable to expect living standards to improve over time, with typical incomes rising faster than prices.  As a result, if government spending on social security as a proportion of GDP remains constant, this should involve some real terms growth in spending. (Put differently, if social security spending were frozen in real terms there would be an increasing gap in the standard of living between those who are in receipt of benefits and those who are not). But typically, tax receipts will also rise as the economy grows, and so constant welfare spending as a proportion of GDP would not, in isolation, precipitate a need for tax rises.

So, how does welfare spending look when we examine it in real terms rather than as a share of GDP? (We apply our usual dismissal of nominal numbers as much to the welfare budget as to anything else). The low point for real terms welfare spending was 2019-20, the year before the pandemic, when a total of £280 billion was spent on welfare in Britain (in current prices). The latest projection for 2025-26 (with an adjustment for the Winter Fuel Payment U-turn) is for real spending to be £324 billion, some £44 billion higher (see Figure 2). So, can we just bring the real level of spending back to what it was before the pandemic?

Let’s break it down. The £44 billion rise over this period comes from two major pressures. First, £21 billion of it comes from spending on pensioners, mostly because of the triple lock on the State Pension and the growing pensioner population. This spending is not currently politically contested: all the main parties support the triple lock despite the fact that it has cost three-times more than initial expectations and will continue to place upward pressure on welfare spending until reformed. But even if the triple lock were to be abandoned from next year, this would only save the Government around £750 million in 2029-30 (compared to uprating in line with average earnings growth, the minimum currently enshrined in legislation), hardly enough to prevent the need for tax rises now. If we want to save a significant amount over the forecast period from pensioners, that would likely involve cutting the value of the State Pension, and it doesn’t feel like anyone is going to stand up after the Chancellor’s speech and argue for that…

The second upward pressure on the social security bill is from non-pensioner disability and incapacity benefits, spending on which has risen a concerning £24 billion since 2019-20. This is driven by rising caseloads (830,000 more families were claiming an incapacity benefit, and 1.4 million more working-age adults were claiming a disability benefit in May 2025 compared to May 2019), again in part because of our ageing population, but also because all age groups have become sicker over time. But although there is widespread political agreement that this trend needs to be addressed, making savings in practice has (and likely will continue to be) very difficult. The sharp cuts to Personal Independent Payment (PIP) and UC Health that the Government announced in March were expected to raise around £8 billion, £6 billion of which has now been reversed. And past attempts to save money from health-related benefits have been no more successful: the introduction of PIP by the Coalition government in 2013 was expected to save £1.4 billion by the end of that Parliament, but in practice saved just 7 per cent of this (£0.1 billion).

Eagle-eyed readers will have noticed that these increases in pensioner spending and non-pensioner health-related spending since 2019-20 add up to more than the £44 billion. This is because real spending on non-pensioner non-health-related benefits has fallen by £1 billion in real terms since 2019-20 and fell even more dramatically in the six years before. Policies such as the benefit cap, the two-child limit, the ‘bedroom tax’ and a four-year freeze to most working-age non-health benefits meant that, between 2010-11 and 2024-25, working-age households receiving benefits lost an average of £1,500 of their annual income due to permanent changes to the social security system (in 2024-25 prices).

What’s often missed out of the conversation around ‘out of control’ welfare spending, then, is that the standard social security system for working-age families has been cut to the bone since 2013. And many of these cuts – in particular the two-child limit and the ongoing freeze of both the benefit cap and Local Housing Allowance – continue to have an ever-deeper impact day after day. No wonder, then that we have stubbornly high child poverty and homelessness levels in Britain today.

All in all, any claims that a significant portion of the tax rises expected on Wednesday could have been avoided by cutting social security spending need to explain how this could truly be achieved. Touching the triple lock, let alone the current value of the State Pension, is politically taboo; reducing the bill for disability and incapacity benefits is an area where entitlement cuts alone have never been a successful route to savings and a more thoughtful approach is required. And as far as the rest of the social security system is concerned, the reality is we need to spend more, not less, if our poorest families and children are not to shoulder the burden of an ageing and ailing population.