Rising welfare bill set to ‘swallow’ stealth tax revenue
Rising benefit costs will “swallow” all the revenue from frozen tax thresholds that are dragging millions of workers into paying higher rates, analysis has found.
The Centre for Social Justice has said that the £33bn increase in benefits spending between 2027 and 2032 will broadly match a rise in projected receipts from frozen income tax and National Insurance thresholds.
The report by the Office for Budget Responsibility showed that annual spending on working-age, disability and child benefits would rise by over £33.4bn, which roughly equals the additional £33.1bn revenue to be made from higher taxes on workers, figures unearthed by the CSJ found.
Joe Shalam, policy director at the Westminster think tank, said the government’s “holding position” on welfare would lead to “wasted money and wasted potential”. The report said that “rising benefit costs are set to swallow the entire increase in annual revenue from stealth taxes on work”.
Healey facing questions over welfare comments
The analysis was released on the same day John Healey came under scrutiny over his comments to get the welfare bill down.
When asked by the BBC’s Today programme whether there would be a drop in the welfare bill before the election, Healey said: “There will be. There will be a reduction in the benefits bill. We’ll do that in a Labour way.”
Healey has also promised not to deliver “crude cuts” and suggested that investment in employment opportunities would support people to get into work.
However, shortly after the comments, BBC News reported that Treasury officials “took issue” with the comments being interpreted as a commitment to cut the welfare bill by 2030.
At a briefing with journalists later in the day, the Prime Minister’s spokesman also refused to explain what the government meant by its push to “get the welfare bill down” and in what time frame this would occur.
Between 2025 and 2032, as detailed in the OBR’s forecast period, the welfare bill is set to rise by about 0.4 percentage points as a share of GDP, adding to pressures on public finances.
Andy Burnham’s spokesman said the government awaited the publication of the Sir Stephen Timms review on disability payments and the Alan Milburn review on youth unemployment to set out measures on tackling benefits spending.
The government confirmed that full policy measures on welfare reforms would only come “early” next year.
The spokesman added that the government was already taking action to reform welfare by changing Universal Credit, cracking down on fraud and ending benefit entitlement for serious offenders detained in hospital.
He added that reforming the welfare system also involved “addressing the underlying drivers of rising spending”. Burnham has vowed to change the triple lock on state pension in a reform that would stop a “ratchet” effect that pushes up spending, although any change will only come after 2030.