Spending on welfare, including pensions, is set to rise by £74 billion over the next five years, the budget watchdog has confirmed.
Official forecasts, published alongside Chancellor Rachel Reeves’s Spring Statement, also show a higher than expected rise in the predicted spend on health and disability benefits by £1.3bn due to a rise in caseload.
And the predictions show levels of unemployment will reach 5.3 per cent, up from a 4.9 per cent peak forecast at the Budget, before beginning to fall.
Reeves insisted hers was the “right plan” for the economy and promised to do more to improve employment rates among young people.
She said her government was “fixing” the welfare system, hitting out at the Tories for allowing the benefits bull to rise “twice as fast” under their watch.
It comes after Reeves was last year forced to water down planned cuts to health and disability benefits after political pushback from angry Labour MPs.
Health and disability costs to rise
The entire cost of welfare, including pensions, is still rising considerably and will increase by £18bn in this year alone. It will then rise by around £15bn a year over the forecast period.
The OBR predicted the Government will spend £333bn on welfare this year – 10.9 per cent of GDP. By 2030/31, it is forecast to amount to £407bn – 11.7 per cent of GDP.
The forecasts are largely unchanged since November’s Budget, but the OBR noted an unexpected uptick in the cost related to health and sickness-related benefits, the OBR said.
In November 2025, the total spend on working age adults claiming disability or health-related benefits was predicted to be £80.2 billion per year by 2030/31.
And in Tuesday’s equivalent forecast, this has risen to £81.5bn. The OBR said the rise is driven by a rise in caseloads.
The predicted overall welfare spend remains close to the figure published in Autumn because this increase is balanced out by a fall in spend in other areas.
And a government source said the overall cost is still forecast to rise by less than half the amount than it did under the previous Parliament.
Health and disability spending is expected to rise 0.3 percentage points compared with 0.5 under the previous Parliament, they added.
Reeves acknowledged in the statement that the unemployment rate is also expected to be higher than previously thought, before beginning to fall towards the end of the forecast.
The OBR put the bigger increase down to new people entering the labour force “struggling to find work amid subdued hiring demand”.
More policies to tackle youth unemployment
Reeves told MPs she would be announcing more policies to tackle youth unemployment and the almost one million so-called “neets” – young people not in education, work or employment.
The Youth Guarantee policy – a package to tackle youth unemployment – is already beginning to be rolled out across the country.
“In the coming weeks, I will set out more reforms to undo the Tory legacy of neglect and give young people the support and the opportunity that they deserve,” Reeves said.
Further changes to welfare eligibility are not expected until after a review into youth unemployment reports in summer of this year.
It remains to be seen whether ministers will press ahead with their proposal to block under-22s from being able to claim UC Health – the benefit for people out of work due to sickness.
The policy was consulted on last year and the Government has not provided an update since.
Government sources would not be drawn on whether the Chancellor was referring to this policy in her comments.
But Reeves refrained from promising the welfare savings she has pushed for in the past.
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Shadow chancellor Sir Mel Stride said the Chancellor’s statement failed to provide a “clear plan to get spending under control”.
He added: “The big distinction between us and Labour is we believe that living within our means, getting public spending under control, particularly the welfare bill.
“If you get people off benefits and into work, you can use those savings.”
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