The UK government’s failure to reform its welfare system is projected to cost taxpayers over £25 billion annually, according to a recent report from the Centre for Social Justice (CSJ). This situation translates to an estimated additional burden of £700 for every taxpayer, raising concerns about the sustainability of the welfare system and its impact on public finances.
The CSJ’s findings suggest that the decision to forgo necessary reforms will exacerbate existing issues within the welfare framework, particularly with rising health benefits. The report illustrates a critical juncture for Chancellor Rachel Reeves, who faces the challenge of addressing a growing fiscal black hole in the upcoming Budget. Had the government pursued a strategy to stabilize spending on health benefits, the Chancellor might have been positioned to implement tax cuts or enhance funding for key sectors such as the NHS or national defense.
Instead, the government appears set to increase taxes on working citizens, potentially breaching manifesto commitments. The CSJ’s analysis highlights the political gamble involved, as the government asks the public to endure higher taxes while welfare expenditures continue to climb. The internal dynamics of the Labour party further complicate this situation, as recent welfare concessions have drawn mixed reactions within government circles.
The impact of stagnant welfare reform extends beyond fiscal implications; it has severe consequences for human potential. Current data indicates that welfare policies are increasingly locking individuals out of the workforce. Since the onset of the pandemic, the number of claimants not required to seek employment has nearly doubled. Nearly one million young adults are now classified as NEET (not in education, employment, or training), representing an increase of 200,000 since 2019.
Spending on working-age benefits has surged to £20 billion higher in real terms compared to 2020, a situation exacerbated by recent tax hikes on businesses. These measures have led to a decline in hiring, particularly among young people, with 180,000 young individuals falling off payrolls since the tax increases were announced last October.
As businesses increasingly rely on migrant labor, many young UK citizens are turning to health benefits for support. Over half of inactive young individuals cite health issues as their reason for not participating in the workforce, and 62 percent report experiencing mental health conditions. Evidence suggests that remaining on benefits does not effectively aid those struggling with mental health, and may even be detrimental to their well-being.
To address these pressing issues, the Chancellor should consider several strategies. First, the introduction of a “Future Workforce Credit” could provide a tax incentive worth 30 percent of an unemployed young person’s salary, funded by a reduction in health benefits for those under 22. This initiative could potentially bring 120,000 young people into employment and save nearly £800 million in taxes and benefits.
Second, a shift from broad welfare payments to targeted mental health support and therapy could yield substantial savings, estimated at over £7 billion. This approach would also expand access to NHS mental health services and back-to-work programs.
Finally, reinstating the resident labor market test would require employers to prioritize local talent before seeking visas for foreign workers. This policy could help more young Britons exit the benefits system and secure jobs that contribute to economic growth.
As the Chancellor prepares for the next round of tax hikes, it is crucial for her to outline a comprehensive plan aimed at revitalizing the workforce. By focusing on these strategies, she can work toward not only alleviating the immediate fiscal challenges but also fostering an environment where the potential of young Britons can thrive.
