House of Commons Library

The welfare cap

Published Monday, December 12, 2016

This policy limits the total amount that Government can spend on certain benefits, including tax credits and housing benefit. Not to be confused with the household benefits cap which limits the amount individual households can receive.

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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 56% of total welfare spending in 2015/16. It excludes pensions and Jobseekers’ Allowance, but includes tax credits, child benefit and disability benefit.

The cap was first introduced in Budget 2014 and Office for Budget Responsibility (OBR) first reported on whether the cap had been met or exceeded alongside the Autumn Statement 2014.

At Autumn Statement 2015 the OBR assessed that the cap was breached in three of the five years of its forecast. A breach of the cap meant that the Parliamentary Under-Secretary of State for Work and Pensions had to explain to the House of Commons why the breach of the cap was justified. The operation of the cap and the consequences if the cap is exceeded are outlined in the Charter for Budget Responsibility.

The Government has proposed revisions to the welfare cap in the Autumn Statement 2016. The proposals are included in a draft Charter for Budget Responsibility. The revisions, if agreed by a vote in the House of Commons, will mean that spending on welfare must be within the cap and a 3% margin in 2021/22. The revised approach means that the cap will only be formally assessed at the first Budget or first 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.

Until the draft Charter is approved the previous version of the welfare cap remains in place. As a result the OBR assessed performance against this version of the cap at Autumn Statement 2016. The OBR found that the cap would be breached in all years of its forecast. The government must now seek Parliament’s approval for the breach. There will be a debate on 12 December on the government’s votable motion:

That pursuant to the Charter for Budget Responsibility: Autumn 2015 update, which was approved by this House on 14 October 2015, under Section 1 of the Budget Responsibility and National Audit Act 2011, this House agrees that the breach of the Welfare Cap in 2019-20 and 2020-21, due to higher forecast inflation and spend on disability benefits, is justified and that no further debate will be required in relation to this specific breach.

 

Welfare cap vs. the household benefit cap

The welfare cap on specified elements of social security spending is not to be confused with the household benefit cap – introduced in 2013 – which limits total household benefits at £500 per week for a family and £350 per week for a single person with no children (subject to certain exemptions). See our note on The Household Benefit Cap (SN06294) for more on this. 

Commons Briefing papers SN06852

Author: Matthew Keep

Topics: Benefits policy, Economic policy, Public expenditure

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