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Welfare spending on health-related benefits has risen faster in the UK than in comparable countries, according to research that underlines the policy dilemmas facing ministers in the run-up to the autumn Budget.
The Institute for Fiscal Studies said spending on health-linked state support had increased from £36bn in 2019-2020 to £48bn in 2023-24, and on official forecasts was set to rise to £63bn in 2028-29.
This rapid growth was “largely a UK phenomenon”, the think-tank said, and so was unlikely to be due purely to the Covid-19 pandemic or cost-of-living crisis.
Strains on the NHS and the design of the UK benefits system, where incapacity support is both more generous and less stringently policed than that for joblessness, could partly explain the increase, the IFS said.
State expenditure on similar benefits was found to be little changed in 10 similar countries where data was available — including Australia, Canada, Germany, France and the US — although Denmark had seen a significant but much smaller increase.
If spending continued to increase in line with forecasts, to reach 2.1 per cent of GDP by 2028, the UK would become one of the highest spenders on health-related benefits among its peers, the IFS said.
The report, published on Thursday, highlights the challenges facing chancellor Rachel Reeves, who has warned that next month’s Budget will involve “difficult decisions” on welfare, as well as on tax and on spending on public services, in order to plug gaping holes in government finances.
The study covered means-tested incapacity benefits — which boost income for people whose health is judged to limit their ability to work — and disability benefits, which are meant to help cover additional living costs faced by those with disabilities, regardless of their income or employment status.
The previous Conservative government announced measures last year that would narrow eligibility for incapacity benefits. The Office for Budget Responsibility, the fiscal watchdog, said these could cut welfare spending by around £1bn a year by 2028, but would bring only around 10,000 people into work.
David Finch, an assistant director at the Health Foundation think-tank, said the OBR’s assessment showed that attempts to make short-term fiscal savings could “take a significant amount of money away from a vulnerable group” without achieving the purported aim of boosting employment.
The Labour government has not yet said whether it plans to proceed with the reforms to incapacity benefits, planned for 2025; they have been factored into fiscal forecasts but have not yet been implemented in legislation.
A government spokesperson said plans to overhaul jobcentres and give local areas powers to tackle inactivity would help more people find “full and fulfilling work”. It would “say more in due course” about the need for wider reforms of the regime for incapacity and disability benefits.
Tom Waters, associate director at the IFS, said claims for health-related benefits had risen in every area of the UK, except the City of London, regardless of trends in local labour markets.
New claims for disability benefits had risen faster than for incapacity benefits, in particular those made by younger claimants due to mental health problems.
The think-tank added that there would be no easy solutions, as “improved health and employment support are hard to deliver, would likely take time . . . and will likely require significant fiscal outlay”.
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