The Treasury manages public spending within two ‘control totals’ of about equal size:
- departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
- annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.
Social security and tax credits together are the biggest source of AME spending. Jobseeker’s allowance (JSA) is one of the smaller elements of welfare spending and is one that has already been replaced to a significant extent by universal credit. It is an income replacement benefit providing support to those who are unemployed and actively seeking work. It was introduced in 1996, replacing unemployment benefit and the unemployment element of income support. The key driver of spending on JSA is therefore unemployment.
There are two types of JSA:
- Income-based (or non-contributory) JSA is paid to claimants who satisfy a household-based income test which takes account of both earnings and capital; and
- Contributory JSA is paid to individuals who have paid sufficient Class 1 National Insurance contributions in the two tax years prior to the date of claim.
Although small relative to other lines of spending, spending on JSA and its predecessors has historically been volatile, rising and falling with the ups and downs of the economic cycle.
Income-based JSA is one of the elements of welfare spending that is being replaced by universal credit over the coming years. Contributory JSA will continue as a separate benefit. Currently, we produce our forecasts for all benefits affected by UC by first assuming a no-UC counterfactual (i.e. the legacy benefits continue as before) then adding the marginal cost of introducing UC. In outturn years, in order to enable monitoring of monthly spending against our forecasts, we switch to an ‘actual cost’ presentation of spending showing legacy benefit spending net of the impact of the UC rollout. These accounting switches appear as line breaks between the last actual cost and first no-UC counterfactual data points in the charts below. Our January 2018 Welfare trends report details how we forecast spending on UC and the legacy benefits.
In our latest forecast, overall outturn spending on JSA is estimated to be £1.7 billion in 2017-18, with around £0.9 billion of income-based JSA spending having been ‘lost’ to UC. We expect overall JSA spending in 2018-19 on a ‘no-UC’ counterfactual basis to total £2.5 billion, which would imply 0.7 million claimants being paid an average of around £3,830 each. That would represent 0.3 per cent of total public spending and 0.1 per cent of national income.