The UK’s fiscal watchdog has forecast welfare spending to soar over the next few years after the Labour government ditched plans to reform the welfare state.
The Office for Budget Responsibility (OBR), which accidentally published its report before the Budget, has said welfare spending will rise by £12bn in the fiscal year 2029-30, when compared to the previous forecasts made in the Spring Statement.
The significant upward revision comes after Labour ditched the two-child benefit cap in a move expected to cost nearly £3bn.
It’s set to make a hefty chunk of the £9bn in spending, which the watchdog says will come from policy reversals and announcements.
These include £3.9bn from reversing the tightening of personal independence payments (PIP) criteria, £1.7bn from U-turning on winter fuel payments and £520m from the increase to universal credit health element.
The remaining £3bn annual increase is due to a higher underlying forecast for inflation, which triggers higher mandatory annual uprating costs for benefits linked to the cost of living.
‘Classic Labour’ spending Budget
Still, Reeves pledged to plough forward with welfare cuts in the Budget.
The Chancellor said the government will crack down on the scale of welfare spending, adding that changes to Universal Credit “will get 15,000 people back into work”.
She focused blame on the previous Conservative government: “Under the Conservatives, the cost of our welfare system increased by nearly one per cent of GDP – equivalent to £88bn over five years.
“The broken welfare system we inherited wrote off millions of people as too sick to work.”
“And we will reform that system… So it is a system that does not count the cost of failure but one that protects people who cannot work and empowers those who can,” she added.
Labour had hoped to shed £5bn in welfare spending earlier this year but was shot down by rebels.
The move to ditch the two-child benefit cap is viewed as a crucial policy to appease the Labour left, which has become increasingly agitated with the party leadership.
Helen Thomas, founder of Blonde Boney, described the Budget as “classic Labour,” as she appeared on City AM’s live Budget show.
“Perhaps she thinks it saved her short-term political future,” Thomas added.
“She’s drawn a line today, but frankly, I don’t think it’s going to go very well for her.”
But the moves land as the government launches a £26bn tax raid, with cash grabs on landlords, savers and bookies.
Borrowing is also expected to be £15bn to £20bn higher than previously planned, thanks in part to the abolition of the child benefit cap, welfare changes, and overspending by local authorities.