The welfare cap

The welfare cap is a limit on the amount that government can spend on certain social security benefits and tax credits. The cap aims to better control spending in an area that can be difficult for government to control.

Around half of total welfare spending is included in the cap. It excludes pensions and those payments most sensitive to the economic cycle.

The cap was first introduced in Budget 2014 and the Office for Budget Responsibility (OBR) – the UK’s fiscal watchdog – first reported on whether the cap had been met or exceeded alongside Autumn Statement 2014. The operation of welfare cap is laid out in the Charter for Budget Responsibility – the document that sets government policy and targets for the public finances.

How is the cap set and assessed?

Spending on relevant welfare must be within a cap and a margin in a single year, all of which are chosen by the Treasury. The cap is only formally assessed at the first Budget or first fiscal update of each new Parliament.

Latest formal assessment and level of the cap

Spring Budget 2020 was the first fiscal event of the current Parliament. The OBR therefore made a formal assessment of the cap and judged that it was being met. The Treasury also set a new cap and pathway for the cap as it must do at or before the first fiscal event of the Parliament. The Treasury said that the welfare cap will apply in 2024/25.

At Autumn Budget 2021, the Treasury proposed that the welfare cap should be reset. The reset was approved by the House of Commons on 10 January 2022. It has since been adjusted for “fiscally neutral classification changes”, which don’t require Parliament’s approval. The cap in 2024/25 will be £135.4 billion, with a margin of 2%. It will apply in 2024/25.