Andy Burnham has confirmed his government will take action on DWP benefits, with the Institute for Fiscal Studies (IFS) forecasting that the welfare bill will cost taxpayers an extra £1.7 billion from 2027-28 onwards if inflation holds at current levels into the autumn.
The IFS said that should inflation remain at 2.9 per cent, Chancellor John Healey would need to find the additional £1.7 billion to cover higher Department for Work and Pensions (DWP) benefits payments. Working-age benefits are usually uprated in line with September's inflation rate.
Welfare spending already at £353 billion
DWP welfare spending overall is already set to reach £353 billion, up from the £314 billion bill when the Labour Party first entered Downing Street in 2024, when Sir Keir Starmer became Prime Minister. The increase represents a rise of £39 billion over the period.
Now Prime Minister, Burnham, the Makerfield MP, has warned he will “get serious” over the welfare issue. His Chancellor John Healey has been warned by investors and analysts not to relent in efforts to reduce the UK’s fiscal deficit in his first Budget, given the increasingly tumultuous mood in global bond markets.
Burnham vows to reduce welfare spending
“We’ve got to get really serious as a country at getting the welfare down,” Burnham said of spending on public assistance. “I think we need to continue down that approach and where mental health support is needed, for instance, it’s provided in work to support people in an opportunity,” he added.
Mr Healey is preparing to unveil his Budget on October 28. The IFS said that if inflation remained at 2.9 per cent into the autumn, Mr Healey would still have to find an extra £1.7bn from 2027-28 onwards if he chooses to raise benefits payments in line with price rises.
Inflation impact on pensions and fiscal rules
The Office for Budget Responsibility, the government’s tax and spending watchdog, predicted before the war that inflation would stand at 2.1 per cent. Inflation at 2.9 per cent would also mean spending on public sector pensions would rise by around £0.7bn, the IFS added.
“Fiscal rules can be reinterpreted to unlock more money, and so can the promise of spending cuts down the line,” said Neil Mehta, portfolio manager, investment grade, at RBC BlueBay. “But where this government hangs is on credibility. Inflation needs to be quashed, spending needs to be reined in and investment needs to be growth-enhancing in the long run.”
The Treasury said: “Fiscal discipline is the bedrock of economic stability and national security. The chancellor and prime minister are in lockstep that the government will meet the fiscal rules, with a buffer against uncertainty. We’re cutting the deficit faster than any other G7 economy to the lowest level in six years.”
