What are the government's options for reducing welfare spending?

Chancellor John Healey and Prime Minister Andy Burnham have both spoken of their desire for the benefits bill to come down, but the government has not yet laid out a timetable for any reductions. Their political opponents criticised them for a lack of detail on welfare reform in Wednesday's Budget, accusing the government of delaying difficult decisions over cuts. Official forecasts released alongside the Budget indicate welfare spending is set to increase by £79bn in cash terms over the next few years. The Office for Budget Responsibility (OBR), the official forecaster, estimates the cost of the welfare system will rise from £353bn this year to £431bn in 2032. Those figures include spending on pensioners, which accounts for just under half of the total, the majority of it on the state pension. Measured against the size of the overall economy, the projections look less dramatic. Welfare spending is forecast to edge up from 11.1% of GDP today to 11.3% in 2032, and would remain below the peak of around 12% of GDP reached in 2013 after the global financial crisis. That has led some economists and researchers to question the idea that welfare spending is out of control. However, some welfare costs are rising rapidly. Spending on health and disability related benefits, in particular Personal Independence Payments (PIP), has increased sharply since the Covid-19 pandemic. Accounting for inflation, spending on working-age disability benefits rose from £14bn in 2020 to £25bn in 2026. Inflation-adjusted welfare spending overall remains lower than in 2013 because several other working-age benefits, such as Universal Credit and housing benefit, were cut by Conservative-led governments as part of the austerity programme from 2010 onwards. Some researchers believe those cuts may have created an incentive for people to claim sickness and disability benefits instead in order to protect their living standards, shifting costs around the system rather than generating lasting savings. A particular concern is the growing number of young people claiming benefits, including PIP. Official figures show the number of 16 to 24-year-olds not in employment, education or training (Neets) has risen by around 230,000 since 2019 to just under one million. Former Labour health secretary Alan Milburn is leading an official review into Neets and is expected to recommend major reforms designed to get many off benefits and into work. His interim report in May estimated that annual PIP expenditure on 16 to 24-year-olds rose from £1.3bn in 2020 to around £3.2bn in 2025, and projected the cost would reach £6.5bn covering 700,000 young people in five years' time. While PIP claimants can be in work, official statistics show only around one in five are. Politicians are often unclear about what they mean by reducing welfare spending. In March 2025, former prime minister Sir Keir Starmer's government presented a plan it said would save £5bn a year from health-related welfare spending by 2030 by tightening PIP access and reducing the value of health-related Universal Credit payments. But official forecasts made clear that annual spending in cash terms was still set to rise after the reform, just not as rapidly as previously projected. At the time, however, the OBR did forecast the plans would put overall UK welfare spending on a "slightly downward trajectory" as a share of the economy over the medium term. This type of relative reduction, rather than a cut in absolute cash terms, could be what the current government seeks to deliver. The final Milburn report is expected in the coming weeks, along with a separate final report from disability minister Stephen Timms into options for PIP reform. There has been speculation these could recommend creating a new welfare system for people under the age of 25, so they are not eligible for PIP and receive lower payments than older people. There are also suggestions Timms could propose a new PIP eligibility test to reduce access, although he was not specifically instructed to find savings. Some analysts argue that to deliver sustainable savings, such reforms would likely also require the government to spend considerably more to help young people in particular get into and remain in work. The interim Milburn report noted that for every £1 the government spends on employment support for young people, around £25 is spent on benefits, suggesting he could propose a significant increase in welfare-to-work spending. That means any welfare savings could, in the near term at least, be offset by additional spending in other departments, though in the long term the approach could still deliver savings if the employment support proves effective.