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.

The cap included 54% of total welfare spending in 2017/18. It excludes pensions and Jobseekers’ Allowance, but includes tax credits, child benefit and disability benefit.

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 out the Government’s policy and targets for the public finances.

The Government revised its approach to the welfare cap in Autumn Statement 2016. The new approach, agreed by a vote in the House of Commons, means that spending on welfare must be within the cap and a margin in a single year chosen by the Treasury. The cap will only be formally assessed at the first Budget or first fiscal update of each new Parliament. The previous approach saw the OBR make a formal assessment at each Autumn Statement, and the cap applied for each year of the OBR’s forecast.

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. The cap in 2024/25 will be £137.2 billion, with a margin of 3%.

At Autumn Budget 2017 the OBR made a formal assessment of the welfare cap, which at the time applied in 2021/22. The OBR judged that the terms of the welfare cap were being met.

At Autumn Statement 2015 and Autumn Statement 2016 the OBR judged that the previous version of the welfare cap was being breached. A member of the Government had to come to the House of Commons on each occasion to explain why the breach of the cap was justified.