Welfare reform: explained

The welfare system is an important source of support to millions of people, and makes up a huge part of government spending. Both the number of people claiming, and the amount the government spends, are set to increase over the next few years.

So what are the big policies and issues, and what have the parties said about them?

In this article, we look at welfare spending that’s focused on people of working-age, as well as health and disability-related benefits, as opposed to pensions.

This explainer is one of several Full Fact is publishing ahead of the general election, exploring a range of topics which are likely to be of interest to voters. We’ll be updating these articles on a regular basis—this article was last updated on 1 July 2024 and the information in it is correct as of then.

How much do we spend on welfare, and who gets support?

The welfare system is one of the biggest areas of UK public spending. In 2022/23, total government spending was nearly £1.2 trillion (£1,200 billion), of which nearly £260 billion (22%) was on social security. 

By far the largest portion of this spending goes to pensioners (around £140 billion), mainly through the State Pension.

Another large part of spending goes on Universal Credit (nearly £42 billion in 2022/23). This was a major change to the benefits system introduced by the Conservative/Liberal Democrat coalition government in 2013, replacing six benefits and tax credits with a single payment. That change has been happening gradually over several years, with growing numbers of people claiming Universal Credit, but some people still receive the old ‘legacy’ benefits. 

Provisional figures for May 2024 show there were over 6.8 million people claiming Universal Credit. 

Significant amounts are also spent on Personal Independence Payment (£17.6 billion), which was also introduced in 2013 to replace Disability Living Allowance for working-age people. The next largest items are housing benefits (£15.6 billion) and Employment and Support Allowance (£12.1 billion). 

What has changed in recent years?

Apart from the introductions of Universal Credit and Personal Independence Payment mentioned above, there have been other significant policy changes in recent years.

One of these is what’s known as the ‘two-child limit’, which refers to the childcare elements of Universal Credit being limited to the first two children in a household. The limit only applies to children born after 5 April 2017, with some exceptions for special circumstances.

The limit was introduced in 2015 by the Conservative government, which argued that the policy was “fair to the many working families who don’t see their budgets rise […] when they have more children”. However, it has proved controversial, and has been linked to increases in child poverty.

It currently affects around 550,000 households, which is expected to grow as more two-child families have more children after the 5 April 2017 date. The Institute for Fiscal Studies estimates the cost of removing the limit would be £3.4 billion a year. 

Total benefits payments, including Universal Credit and other benefits, are also capped so that most households or single people cannot receive combined payments that breach the limit. This is known as the benefit cap. 

It was introduced in 2013 by the coalition government. For 2024/25, the benefit cap is set at £25,323 for families in London and £22,020 for families elsewhere. For single adults without children in London the cap is £16,967, and elsewhere it is £14,753.

What might the big issues be going into the next parliament?

Without any major policy changes, total welfare spending (including pensions) is forecast to rise by £100 billion between 2022/23 and 2028/29, according to the best available estimates. Those increases would mean welfare spending growing from 10% to 11% of GDP.

The independent Office for Budget Responsibility says the main drivers of this are pension increases due to an ageing population and the triple lock, and rising numbers of people claiming health and disability benefits.

New claims for Personal Independence Payment, for example, have generally been rising more steeply since the Covid-19 pandemic, which has also contributed to a larger backlog of cases waiting for initial decisions. 

The Universal Credit rollout is also due to be completed during the next parliament, and there will be challenges in managing the movement of people still on legacy benefits onto Universal Credit, especially since the groups still to be moved include particularly vulnerable people.

It’s also possible that more will need to be spent on health-related benefits, as a rising number of people in the UK are economically inactive, which means they’re not in work, haven’t sought a job for about a month, and aren’t available to start work within two weeks. This tends to include retired people, students and people who are sick or disabled.

In many developed countries the number of economically inactive people increased during the Covid-19 pandemic, but then declined. In the UK, the number of economically inactive people has increased, reaching 9.4 million in the three months to April 2024. The Office for National Statistics has said that the rise in economic inactivity annually has mainly been driven by an increase in two groups: students and the long-term sick.

The number of people economically inactive due to long-term sickness in the UK has increased from around 2 million people in the three months to April 2019 to 2.8 million over the same period in 2024.

The reasons for the increase in long-term sickness are complex. Some factors that have been suggested include larger than normal numbers of people (from the ‘baby boomer’ generation) approaching retirement and the impact of NHS waiting lists. But it’s not yet known exactly how much of an impact these factors have on the rising trend in illness.

What do the parties say?

The Conservative party’s 2024 manifesto referred to the increase in those economically  inactive due to sickness, saying: “the number of working age people claiming benefits is projected to grow at an unsustainable rate”. It claimed that £12 billion of savings would be found in the welfare system by:

• Reforming the work capability assessment and the fit note process “so that people are not being signed off sick as a default”.
• Increasing the use of sanctions for those who refuse to take up work and by accelerating the rollout of Universal Credit to those on legacy benefits.

The proposed reforms are largely a re-statement of commitments that the Conservative government had made in a disability white paper and the spring budget of March 2023, and the ‘back to work plan’ in the 2023 autumn statement. This means that they have already been factored into existing forecasts by the Office for Budget Responsibility. 

This has prompted the Institute for Fiscal Studies think tank to state: “The policies that have been spelt out are not up to the challenge of saving £12 billion a year. Some have already been announced and included in the official fiscal forecasts; others are unlikely to deliver sizeable savings on the timescale that the Conservatives claim.”

The Resolution Foundation think tank has also stated that saving £12 billion from the measures proposed in the Conservative manifesto would be “extremely challenging to implement”.

The Labour manifesto committed to “reviewing Universal Credit so that it makes work pay and tackles poverty”, but provided no further detail on how this would be achieved. It did not commit to abolish the two-child limit.

The Liberal Democrats’ manifesto committed to abolishing the two-child limit, the benefit cap and the so-called ‘bedroom tax’. Also known as the ‘removal of the spare room subsidy’, this is a reduction of Universal Credit or housing benefit for working-age households in social housing who are deemed to have more bedrooms than they require.

The SNP manifesto similarly pledged scrapping the two-child limit and bedroom tax, and scrapping, as it says, “proposed punitive welfare reforms for sick and disabled people”.

The Green Party’s manifesto said it would increase rates of Universal Credit and legacy benefits, and again scrap the two-child limit and the bedroom tax.

Reform UK’s ‘contract’ mentions raising the threshold where people pay income tax to £20,000, up from the current level of £12,570, which it says is to “to make work pay and get people off benefits”, as well as withdrawing benefits from jobseekers and those fit for work who don’t find employment within four months or who refuse two job offers.