Government inaction on working age disability will likely see welfare costs breach fiscal rules by 2030

By Arun Veerappan, Non-Executive Director at the Disability Policy Centre

New analysis suggests that if current trends continue, inaction on addressing working age disability and employment will likely see OBR welfare costs revised; risking fiscal rules being breached by 2029-30.

Forecasting welfare costs remains a complex and misunderstood challenge. The recent Autumn Statement reset the welfare cap, originally introduced in 2014 to limit specific welfare spending. Set at around £195 billion (excluding overspend allowances), the cap aims to control expenditure for this Parliament. However, actual spending has consistently outpaced these limits, with the latest data indicating a breach of the previous cap by £8.6 billion in 2024-25 and an increase of £22 billion above the forecast in the 2021 Autumn Budget.1

While the pandemic has added complexity, the Office for Budget Responsibility (OBR) and the Government continue to underestimate the financial impact and welfare costs of rising disability prevalence and long-term sickness among the working-age population. Shown below, each of the OBR’s five-year projections for Disability Living Allowance (DLA) and its successor, Personal Independence Payment (PIP) — the two main working-age disability benefits — from 2019 to 2024 have been substantially revised higher each year. For 2024- 25, the OBR now forecasts £34 billion in DLA and PIP spending alone, £10 billion (41%) higher than its 2021 estimate2. Even compared to last year’s figures, the forecast for 2028- 29 has now been raised by an additional £3 billion.

Despite such adjustments, OBR projections still remain conservative, with PIP and DLA spending forecast to grow 17% in 2024-2025 before assuming rates slow to 9% the following year and stabilise at an ~8% growth rate for the rest of the decade. This projection is at odds with current trends in disability and economic inactivity.

Disability prevalence among working-age people has increased by 44% over the past decade from 2012/13 to 2022/23 , with 1 in 4 now disabled, and this growth shows no signs of slowing (ONS, 2023). The long-term sick and economically inactive population is also accelerating, rising by 300,000 from Q2 2023 to Q1 2024, reaching 2.8 million, as shown in Figure 2 below. These figures illustrate that this issue can’t simply be attributed to one-off pandemic factors, but rather, are part of a decade long-trend in disability prevalence and rising long term sickness that has simply worsened since the pandemic.

Next year’s increase in PIP benefit spending is driven by both a 12% annual rise in caseloads (now at 3.3 million) and higher award rates, with a third of recipients receiving the highest level of support (DWP, 2024). This shift is unanticipated, as PIP was introduced to reduce costs, yet the average PIP recipient now receives £6,900 annually, compared to £5,520 under DLA (OBR, 2024).

Given current trends, we consider the likely scenario that the OBR will need to make at least one revision if PIP caseloads continue to grow at their current rate, based on DWP figures and flow-rate factors. This adjustment would result in caseloads rising by approximately 0.5 million more than the OBR’s current conservative projection, which already assumes an additional 2 million claimants by 2030. We estimate this increase would lead to an additional £4.5 billion in PIP costs, illustrated as our forecast in Figure 1.

However, we also recognise that the severity or complexity of some individuals’ health conditions may require multiple forms of welfare support. Equally, not everyone who becomes long-term sick or loses their job will immediately qualify for PIP, particularly given the significant delays and backlogs in processing claims.

Other relevant benefits would include Universal Credit (which also has a health component), Employment and Support Allowance (ESA), and Housing Benefit. Factoring in an additional 165K claimants who may not be eligible for PIP but could qualify for these other benefits—and using DWP data to account for different levels of support needed

across four groups based on need—this would conservatively increase welfare costs by £7.5bn annually by 2030.

In total, this increases overall welfare costs (PIP: £4.5 billion + Additional Welfare: £7.5 billion) by ~ £12 billion by 2030.

Assuming a steady annual increase in these costs, this trajectory would likely shift the UK from a narrow fiscal headroom and surplus into a current fiscal deficit of around £2.1bn by 2029-2030 shown in Figure 3.

This would breach the UK’s stability rule, which requires the current budget to be in surplus by 2029-30, until that year becomes the third in the forecast period. Such an increase in spending, if reliant on further borrowing, could also threaten the fiscal investment rule, which mandates that public sector net financial liabilities fall as a share of GDP by 2029- 30—currently projected to decrease by only 0.6% (~£20bn).

These projections underscore the limited fiscal manoeuvrability facing the government. Despite pledges to improve working-age employment for disabled people and those with long-term health conditions, alongside welfare reform, the Autumn Statement offered little to address these issues collectively.

This analysis even excludes other disability related challenges ignored in the Budget, from o clear funding plans for social care, where local authorities’ spending as a share of GDP is set to decline from 5.0% to 4.8% by 2030, or for special educational needs, where the NAO projects a nearly £5 billion cumulative deficit for local authorities by March 2026.(The budget’s commitment of £1 billion only addresses existing deficits).

The government’s current approach overlooks the mounting costs of inaction—particularly the persistent employment gap for disabled people and carers—estimated to cost the Treasury £38 billion annually in our latest report, here. Failure to address this will likely lead to poorly conceived welfare cuts, undermining opportunities to invest in disabled people and support those who wish to work. Our recent analysis suggests that closing these gaps could boost Exchequer revenues by £20 billion by 2029.

Appendix: Methodological Note

• Approach: Our economic analysis is based on Department for Work and Pensions (DWP) data and the latest Office for Budget Responsibility (OBR) forecasts (30 October 2024), with a focus on welfare costs, PIP caseloads, and other relevant data from OBR, HM Treasury, and Autumn Statement materials.

• OBR Data: Yearly autumn projections are derived from analysis of the OBR’s Fiscal Outlooks from 2019 to 2024. Our projection accounts for the latest OBR Fiscal Outlook (30th October 2024) and Post-Measures Welfare Spending Estimates, accounting for flow factor and prior OBR input drivers.

• PIP and Welfare Caseload Projections: We estimate an additional 560,000 PIP claimants by the end of 2029-30, based on current caseload and growth trends, using the latest DWP data. This excludes further, non-inflationary award rises. We also project 165,000 non-PIP claimants who may qualify for other welfare benefits due to rising sickness and long-term inactivity, based on DPC projections informed by ONS and OECD data on health and inactivity trends.

• Cost Groupings: We model additional costs across four groups:
  High Needs (n=145,000): Individuals with complex needs eligible for multiple benefits,

  including PIP, UC, ESA, and Housing Benefit, with an annual cost of £22,900 per claimant. Moderate Needs (n=217,500): Individuals qualifying for some but not all benefits, with a cost

  of £17,900 per claimant.
  Standard Needs (n=217,500): Individuals eligible for limited benefits, costing £12,400 per

  claimant.
  Basic Needs (n=145,000): Individuals receiving only limited welfare benefits.

  Non-PIP claimants are assumed to fall primarily basic needs categories, but with some dispersal, based on DWP data and prior economic analysis.

  Inflation Adjustment: We assume benefit amounts, including PIP, increase by an annual inflation adjustment of 2.0%, in line with the Bank of England’s inflation targets for the forecast period.