2 Welfare spending trends and reductions
6. The DWP Annual Report and Accounts 2012-13 shows
that overall welfare expenditure continues to rise.
|DWP total welfare/ pension spending
|Adjusted (2008/09 prices)
The trends in expenditure across the range of benefits
and pensions paid by the Department are shown in the tables below.
Table 1: DWP cash spending (not adjusted for inflation)
Table 2: Share of total welfare spending (%)
Source: DWP Annual Report and Accounts 2012-13,
Annex 1 expenditure tables (core tables): Table 1: Public spending.
Figures in the table and graphs show the Annually Managed Expenditure
items from this table (pp 168-169)
The key indications are that:
· cash spending
on welfare continues to rise, from £131 billion in 2008-09
and £146 billion in 2010-11 to a projected £171 billion
· In real terms welfare spending
is projected to stabilise and then to rise slightly by 2015-16.
· The share of DWP's total welfare
pensioners continues to rise (despite
increases in state pension age) with the growth in population
and longevity rates, and constitutes well over 50% of total expenditure;
people of working age is projected to
fall to under 20% by 2015-16;
people with disabilities is rising
slightly to just over 20% by 2015-16.
However, DWP believes that welfare spending as a
percentage of GDP is now falling, as the economy starts to grow.
Welfare spending reductions
7. The Government says that its 2010 reforms will
have achieved savings of £50 billion in the welfare budget
by the end of this Parliament in 2015, half of which will have
been saved by the end of the current financial year (2013-14).
The Government aims to save a further £18 billion in financial
8. The Permanent Secretary told us that the key elements
in these savings were: the 1% limit on benefits up-rating; time-limiting
of contributory Employment and Support Allowance (ESA); and housing
(Benefits up-rating is discussed below. We have explored the impact
of reform of support for housing costs in detail in a separate
inquiry. We have begun a new inquiry into ESA).
9. As highlighted by DWP, one of the main elements
contributing to the reduction in welfare expenditure achieved
in 2013-14 is the Government's decision to limit benefit up-rating
to 1% for three years from April 2013 (excluding State Pensions),
rather than it being linked to a measure of inflation. The Department
estimated that this would save £246 million in 2013-14 (DWP
The Government's rationale is that it is fairer to link benefits
up-rating more closely to wage inflation. In the 2012 Autumn Statement
the Chancellor said:
[...] average earnings have
risen by about 10% since 2007. Out-of-work benefits have gone
up by about 20%. That is not fair to working people who pay the
taxes that fund them. Those working in the public services, who
have seen their basic pay frozen, will now see it rise by an average
of 1%. A similar approach of a 1% rise should apply to those in
receipt of benefits. That is fair and it will ensure that we have
a welfare system that Britain can afford.
10. ONS figures show that:
· for most months during 2013 average rises
in total pay hovered around 1%.
· From 2008 to 2012with inflation
generally higher than wage risesbenefit up-ratings, based
on inflation, were generally higher than average rises in total
· Inflation has recently fallen to the lowest
level for some time, to 2%.
For the remaining period of the 1% benefits up-rating,
there is uncertainty as to the future likely growth in wages.
11. Although there is a logic to linking increases
in benefit rates to wage inflation, the potential impact on benefit
claimants needs to be borne in mind. Expenditure on essentials
such as rent, heating and food is generally thought to be higher
for people on low incomes. The proportional impact of price rises
can therefore vary according to income. The Institute for Fiscal
Studies (IFS) produced a report in 2011 showing that the poorest
fifth of households faced an average annual inflation rate of
4.3% between 2008 and 2010, whilst the richest fifth experienced
a rate of just 2.7% a year over the same period.
12. We asked the Secretary of State what assessment
the Department had carried out of the impact that the limit on
up-rating had had so far on claimants. He said that "the
evidence we get is that people are by and large managing"
and he highlighted that local welfare assistance schemes were
in place to provide support for claimants who were facing hardship.
We discuss local welfare assistance provision below.
13. Studies have shown that people on low incomes
spend a higher proportion of income on rent, heating and food,
which are often subject to higher inflation rates than general
expenditure. The average annual rate of inflation that the poorest
people face may therefore be significantly higher than that incurred
by wealthier people. This may mean that people on benefits are
likely to be hard hit by a 1% limit on benefit up-rating. We recommend
that the Government monitor the impact of this reform on benefit
claimants, particularly as many of them may also be affected by
other reforms, including those to housing benefit, the introduction
of the benefit cap, and changes in entitlement to disability benefits.
4 Adjusted using actual and projected GDP deflator
series (at market prices percentage change on last year). See
HM Treasury, GDP deflators at market prices, and money GDP, December
2013. Figures for 2013-14 to 2015-16 are taken from the OBR's
figures in the Autumn Statement 2013,, Table B.2 ,p 111 Back
DWP Mid Year Report to Parliament, April to September 2013,
23 January 2014, Executive Summary Back
HM Treasury Autumn Statement 2013, , December 2013, Cm 8747,
para 1.96 Back
Oral evidence taken on 3 February 2014, HC 867, Q242; see also
HM Treasury, Spending Round 2013, June 2013, Cm 8639, Executive
Summary, p 7 Back
DWP written evidence: response to questions from the Committee
on the Main Supply Estimate 2013-14 Back
HC Deb, 5 December 2012, col 879 Back
ONS, Labour market statistics, January 2014, p 4 (refers to annual
growth of 0.9% in average weekly earnings) Back
ONS, Labour market statistics, December 2013 Back
Institute for Fiscal Studies, The spending patterns and inflation experience of low-income households over the past decade,
June 2011. Inflation figures taken from ONS average weekly earnings
data, Labour market statistics, December 2013 Back
Oral evidence taken on 3 February 2014, HC 867, Q245 Back