The UK government’s decision to forego reforming its welfare system could cost taxpayers over £25 billion annually. According to the Centre for Social Justice (CSJ), this financial burden translates to an increase of £700 per taxpayer, resulting from rising sickness benefits. The revelations come as the Chancellor, Rachel Reeves, prepares for a budget announcement that many anticipate will include tax hikes impacting working individuals.
The CSJ’s report highlights the stark implications of maintaining current spending levels on welfare programs, which many argue are not effectively incentivizing employment. Had the government pursued a path to address these issues, Reeves could have potentially directed funds towards tax reductions or improvements in essential services like health care and defence.
Instead, taxpayers find themselves facing the possibility of increased financial strain. Reeves may have to raise taxes to manage the escalating costs of welfare. This scenario poses a risk of breaching manifesto commitments, much to the concern of her party and constituents alike.
The report underscores the consequences of the government’s inaction on welfare reform. The number of claimants not required to work has nearly doubled since the onset of the pandemic, highlighting a growing dependency on government support. Furthermore, the number of young adults not engaged in education, employment, or training has surged by 200,000 to almost one million.
Economic Impact of Welfare in the UK
The financial implications of the current welfare system extend beyond mere numbers. Spending on working-age benefits has risen by £20 billion in real terms compared to 2020 levels. Young individuals are caught in a web of inadequate support, rising taxes, and a challenging job market.
Under the leadership of former Prime Minister Boris Johnson, immigration policies facilitated an influx of non-EU workers, particularly those under 25, while the overall numbers of young individuals on payrolls have decreased. The tax increases announced last autumn have led many employers to halt hiring, resulting in 180,000 young people dropping off payrolls since October 2023.
The report reveals a troubling pattern: as businesses increasingly rely on migrant labour, young British citizens turn to welfare. Over half of inactive young people cite health issues as their reason for not working, with 62 percent reporting mental health challenges. Yet evidence suggests that remaining on benefits does not aid their recovery, potentially exacerbating their conditions.
Proposed Solutions for Economic Growth
To address these pressing issues, the Chancellor is urged to implement a series of reforms. One proposal includes the introduction of a Future Workforce Credit, which would provide a tax incentive covering 30 percent of an unemployed young person’s salary. This initiative could help 120,000 young people re-enter the workforce while saving nearly £800 million in tax and benefits.
Additionally, a shift from broad welfare payments to targeted mental health support could yield significant savings of over £7 billion. Enhancing access to NHS talking therapies and job support services would provide crucial assistance to those struggling with mental health issues.
Furthermore, reinstating the resident labour market test could encourage employers to prioritise local talent before seeking visas for foreign workers, thereby reducing reliance on benefits among young Brits.
As the Chancellor approaches the upcoming budget, the focus will undoubtedly be on fiscal strategies that not only manage tax increases but also foster economic growth. By prioritising policies that get young people into sustainable employment, the government can begin to repair the existing gaps in the welfare system and mitigate the financial burden on the taxpayer.
The stakes are high, and the need for decisive action has never been clearer. As the UK population awaits the budget details, the hope remains that the government will acknowledge the urgency of reforming a welfare system that many believe is failing to serve its purpose.
