Children and working-age people's welfare bill share 'to hit 30-year low'

Welfare support for children and working-age claimants as a share of GDP will be the lowest for 30 years by 2020-21, the independent budget watchdog has forecast.

The cuts implemented since 2010 will see spending on social security and tax credits return to pre-financial crisis levels by the end of this Parliament - although complex welfare reform schemes have failed to produce the savings claimed by ministers.

The Office for Budget Responsibility forecast that between 2015-16 and 2020-21, welfare spending will rise £14.2 billion to £230.8 billion but once the effects of inflation are taken into account it amounts to a real-terms cut of 2.3% and a fall of 1.4% as a share of GDP.

The impact of the cuts implemented by the coalition and Tory governments since 2010 will return spending on social security and tax credits to the pre-crisis levels of around 10% of GDP. During the crisis, spending jumped by around 2.5% of GDP when many benefits were uprated in line with the higher-than-expected RPI measure of inflation while the economy and real wages shrank.

The OBR analysis suggests that, by the end of the Parliament, spending on pensioners as a share of GDP will have returned to similar levels to those seen before the crisis, but the share of the welfare bill going to children and working-age people will be at the lowest level since 1990-91.

It said: "If welfare spending follows this path, by 2020-21 it will have fallen as a share of GDP for an unprecedented eight consecutive years.

"The 2.1% of GDP drop since 2010-11 would be the biggest on record across two consecutive parliaments, similar in size to that seen during the late-1980s economic boom. This would take welfare spending back to roughly its pre-crisis share of GDP.

"But while welfare spending in support of pensioners would also have fallen to around its pre-crisis level, spending in support of children and working-age people would be at its lowest share of GDP since 1990-91."

The analysis, in a series of papers published by the OBR, suggests that the biggest savings in the welfare bill have come from straightforward cuts in the generosity of benefits - such as uprating them in line with CPI inflation instead of the usually higher RPI - rather than the major structural changes announced since 2010.

The OBR said: "The vast number of policies announced by the coalition are estimated to have reduced spending by £19.6 billion. The biggest savings came from uprating policies that cut average awards across most working-age benefits and tax credits."

The replacement of Incapacity Benefit with Employment and Support Allowance, which was first announced in March 2008, is now likely to save just £0.4 billion a year.

And the replacement of Disability Living Allowance by Personal Independence Payments looks likely to save only £0.6 billion a year by 2020-21 - well short of the 20% savings the coalition was aiming for when it announced the measure in June 2010.

The OBR confirmed that U-turns by former chancellor George Osborne on cuts to tax credits and disability benefits would result in the welfare cap being breached by an average of £4.1 billion a year - or £1.9 billion above the cap and the 2% margin allowed for in the rules.