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 50% of total welfare spending in 2021/22. 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 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 current 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 is only 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 2021, the Treasury proposed that the welfare cap should be reset. If approved by a vote in the House of Commons on 10 January 2022, the cap in 2024/25 will be £138.3 billion, with a margin of 2%. The Treasury also proposes a relatively minor change to how the welfare cap operates if there is a shock to the UK economy. The Charter for Budget Responsibility has been revised to make this change. The House of Commons will vote, also on 10 January 2022, on whether to approve the revised Charter. The Library briefing The UK’s fiscal targets has more on the changes made in the revised Charter. 

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.