Tax by tax, spend by spend

Welfare spending: universal credit

This Forecast in-depth page has been updated with information available at the time of the November 2023 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2023 forecast and our November 2023 forecast supplementary tables directly.

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.

Welfare spending is the biggest source of AME spending, with universal credit (UC) and its legacy benefit predecessors expected to account for 27 per cent of total welfare spending in 2023-24 (slightly below its 28 per cent share in 2022-23).

In our November 2023 Economic and fiscal outlook we designated welfare spending into broad recipient groups. Forecasts for individual benefits are available in supplementary table 3.7 on our website.

For this summary, universal credit spending refers to expenditure on universal credit together with the benefits that it is replacing. These include:

  • Working tax credit;
  • Child tax credit;
  • (Working-age) housing benefit;
  • (Income-based) employment and support allowance;
  • (Income-based) jobseeker’s allowance; and
  • (Non-incapacity) income support.

UC combines many features of these means-tested benefits, with entitlement varying by number of children in a household and whether household members have any disabilities, capability for work, carer status, housing and childcare costs. A single, unified benefit should mean that take-up of some elements will be higher than it is in the legacy benefits system, since a claimant completing the application form in full will automatically receive all the elements to which they are entitled. Entitlement is then tapered with net income at a single rate of 55 per cent. For some cases this tapering begins at the point income exceeds a monthly work allowance; others will have their award tapered from the first pound of income.

Many of the differences between UC and its predecessors are operational, including the introduction of monthly reporting, increased conditionality, and the imposition of a ‘minimum income floor’ for some self-employed claimants.

Our January 2018 Welfare trends report  provided more detail on UC and how it differs from the existing benefits and tax credits that it is replacing.

UC is now the largest benefit for working-age households and will continue to grow now that legacy benefits are mostly closed to new claims. It is expected to increase from 58 per cent of total UC and legacy spending in 2022-23 to 63 per cent in 2023-24. We forecast it to reach 86 per cent of total UC and legacy spending in 2028-29. UC was originally planned to have been fully rolled out by 2017-18, but we currently expect the rollout (excluding that for some income-based ESA claimants) to be completed by September 2025. This is eight years later than originally planned.

UC and legacy spending is forecast to be £80.9 billion in 2023-24, up from £73.4 billion in 2022-23 and slightly above the cash-terms high of £80.4 billion in 2020-21. Due to the continuing rollout of UC, spending on UC alone is expected to be £51.2 billion in 2023-24, up from £42.6 billion in 2022-23, and is forecast to reach £88.1 billion in 2028-29.

  Previous forecasts

Universal credit and legacy benefit spending have been revised up in our most recent forecast. As a result of higher inflation and higher unemployment, we revised up UC and legacy spending in November 2023, particularly for 2024-25 (£[4.7] billion above our March 2023 forecast) but also in subsequent years.

The sharp fall in spending in our July 2015 forecast reflected the policy announcements at the Summer Budget, including a four-year working-age benefits freeze along with other cuts to tax credits, universal credit and housing benefit. Many of these announcements were subsequently reversed before they had been implemented. The sharp rise in spending in our November 2020 forecast reflected the increase in caseloads and temporary increases in generosity as a result of the pandemic.

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  Policy measures

More detail on policy costings up to and including the [November 2023 forecast] can be found in our policy measures database and are described briefly in the Treasury’s relevant Policy costings document.  For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

Key policy changes to universal credit since 2010 include:

  • Limiting the child element of UC to two children and removing the family element for new claims, announced in the July 2015 Budget.
  • Reducing the income disregards and work allowances in UC in the July 2015 Budget.
  • Reducing the taper rate to 63 per cent in Autumn Statement 2016.
  • Temporarily increasing the UC standard allowance by £20 per week (with an associated £20 per week increase to working tax credits) in 2020-21 and the first six months of 2021-22.
  • Raising the local housing allowance rate, which had been frozen since 2010, to the 30th percentile of local rents in 2020-21 before freezing rates again in cash terms.
  • Reducing the taper rate further to 55 per cent, alongside a £500 per year increase to work allowances, in the Autumn 2021 Budget.
  • Various updates to the UC delivery schedule including delaying the managed move of income-based ESA claimants on UC until April 2028.
  • Changes to UC childcare support in the March 2023 Budget, including increasing the childcare element to £951 for one child and £1,630 for two children from July 2023, and reimbursing parents moving into work for the first month’s childcare costs upfront.
  • Increasing benefit conditionality for carers of young children in the March 2023 Budget.
  • Reforming the Work Capability Assessment by removing the ‘mobilising’ descriptor and amending the ‘substantial risk’ and ‘getting about’ descriptors, in the November 2023 Autumn Statement
  • Raising the local housing allowance rate, which had been frozen since 2020-21, to the 30th percentile of local rents in 2024-25 before freezing rates again in cash terms from 2025-26 onwards

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Other expediture