Youth unemployment is worse in some parts of England than in Bulgaria or Slovenia as the benefit bill rises
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Britain’s growing benefits bill threatens to wipe out the money raised through one of the Budget’s biggest stealth tax measures.
Workers will pay more as thresholds remain frozen, but the Treasury may have little to show for it.
Spending on working-age, disability and child benefits is expected to increase by £33.4billion between 2026-27 and 2031-32, according to estimates from the Centre for Social Justice.
That increase is slightly higher than the £33.1billion the Treasury is expected to raise by freezing tax thresholds during the same period.
That means the rise in benefit spending would be slightly greater than the extra revenue raised through the threshold freeze.
The think tank described the Chancellor’s statement as a “fudge-it Budget”, claiming the Government had postponed the difficult decisions needed to tackle the welfare crisis.
Annual spending on sickness and disability benefits alone is forecast to exceed £100billion before the end of the decade.
As wages rise while tax thresholds remain unchanged, more people will begin paying tax or move into higher bands.
This could also affect the size of Britain’s workforce by reducing the financial incentive for people to work additional hours or earn more.
Higher marginal tax rates caused by the freeze could reduce labour supply by the equivalent of 215,000 average workers by 2030-31, according to the Office for Budget Responsibility.
Meanwhile, 6.7 million people are claiming out-of-work benefits, equivalent to around one in six working-age adults.
The Government has delayed major welfare reforms until after the Milburn review.
Joe Shalam, policy director at the Centre for Social Justice, said: “That was the fudge-it Budget. Faced with a welfare crisis, a million young people out of work or training and communities trapped in poverty, the government has, for now, handed out a few sweeteners and fudged the hard choices until the next review.”
Mr Shalam warned that public support for a safety net protecting the most vulnerable was “being pushed to breaking point”.
He added: “A holding position will not fix that. No doubt this will all be addressed in a manifesto that is surely in the post.
“But Britain cannot wait for an election. When the sugar rush wears off, all that will be left is wasted money and wasted potential.”
Total welfare spending, including pensions, is set to increase by £19billion this year to reach £353billion. That amounts to nearly £1billion a day and is equivalent to 97 per cent of all income tax receipts.
The OBR projects this bill will balloon to £431billion by 2031-32, putting the government on course to breach its own welfare cap.
The CSJ is urging ministers not to wait but to bring forward a comprehensive package of reforms to get Britain working.
Among its proposals, the think tank recommends restricting mental health benefits to more severe cases, a move it says would save more than £7billion.
Those savings could then free up £1billion to dramatically expand NHS talking therapies and back-to-work support programmes, the CSJ argues.
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