Benefits spending 'to soar by £5.5bn next year' as Burnham rejects 'crude' cuts to welfare bill

Britain's benefits bill is set to soar by £5.5billion next year - significantly more than forecast - as Andy Burnham rejects 'crude' cuts to welfare spending.

An analysis by the Institute for Fiscal Studies found that total spending on welfare would rise by around £5.5billion in 2027.

That is as much as £2.2billion more than the Treasury has budgeted for, based on Office for Budget Responsibility (OBR) forecasts.

Many benefits increase every April in line with the Consumer Prices Index (CPI) inflation rate from the previous September.

Official figures published on Wednesday showed the CPI inflation rate for September this year was 3.5 per cent, more than the OBR forecast of 2.3 per cent across 2026.

This is the highest rate in almost a year and the sharp rise - from 3.1 per cent in August - was blamed on soaring fuel costs due to the Iran war.

The Prime Minister has insisted he will 'bring the welfare budget down', but Mr Burnham has ruled out 'crude' cuts to benefits in doing so.

The Government is expected to soon publish two reports - on youth unemployment and disability benefits - before coming forward with welfare reforms next year.

But ministers are braced for the high upfront costs of measures to tackle youth inactivity to exceed planned cuts to benefits for the next two years, until 2029.

It means Britain's benefits bill - which is estimated to currently stand at around £160billion - could continue rising into the 2030s.

Helen Whately, the Tory shadow work and pensions secretary, said: 'Higher inflation means higher benefit bills, piling more pressure on the public finances while families and businesses are already struggling with rising costs.

'Labour's tax rises and red tape are driving up costs for businesses. At the same time, the Government are handing out billions more in welfare, leaving hardworking taxpayers to foot the bill.'

Tom Wernham, a senior economist at the IFS, told the Telegraph: 'Inflation has multiple effects on the public finances in different directions. The impact on benefit spending is only one component.

'Higher inflation means higher cash benefit amounts, but it also means more revenue raised from taxes, as the things most taxes are levied on – such as earnings and consumer spending – tend to rise with inflation.

'The effect on revenues is especially strong when income tax thresholds remain frozen in cash terms.

'It is likely that in the coming years the increase in tax revenues due to higher-than-expected inflation will exceed the increase in spending on benefits, though this will depend on how fast earnings grow.'

He added: 'Those whose benefit amounts are affected by freezes, such as those subject to the benefit cap, or near the thresholds for asset testing or child benefit being withdrawn, will see larger real-terms cuts to their entitlements due to higher inflation – assuming the Chancellor doesn't change these amounts in the coming budget.'

A spokesman for the Department for Work and Pensions said: 'We want to build a welfare system that incentivises work and supports those who need it most, but the system we inherited denied people the support and opportunities they need to move into work.

'We are already changing the system through the Youth Guarantee, narrowing the gap between Universal Credit standard and health rates, restoring face-to-face assessments, and investing a record £3.5billion in employment support for disabled people and those with long-term conditions.

'The Secretary of State for Work and Pensions (Pat McFadden) is required by law to undertake an annual review of the State Pension and working-age benefits, and final figures will be confirmed once this is finished.'