A recent report by the Resolution Foundation has revealed a stark contrast in the financial impacts of reforms to the UK’s welfare system. The Conservative Party’s 14-year overhaul has benefited pensioners at the expense of working-age families.
Pensioners have gained significantly, while working-age families, especially those with children, have faced substantial financial losses. The findings highlight a growing disparity among different demographics in the UK.
Redirection of Welfare Spending
The Conservative Party’s extensive reforms have shifted welfare spending from children and housing towards supporting the elderly. This change has fundamentally altered the distribution of benefits, favouring pensioners and those on disability benefits.
Although the welfare state’s size has increased slightly from 10% of GDP in 2007-08 to 11.2% in 2024-25, the rise is mainly due to the increasing costs of state pensions and disability benefits, which now consume over 90p of every £1 spent on welfare.
Financial Impact on Different Demographics
The financial repercussions of these reforms have been uneven. Pensioners have seen an average annual gain of £900, whereas working-age families have suffered an average loss of £1,500 per year.
The most affected groups include out-of-work households on benefits, with losses averaging £2,200 annually, and large families with three or more children, experiencing an average reduction of £4,600 per year.
Future Welfare Expenditure
The Resolution Foundation projects that, apart from pensions and disability benefits, welfare expenditure will drop from 4.1% to 3.9% of GDP between 2024-25 and 2028-29.
This equates to a modest real-term increase of £1.6 billion, which is insufficient to address the severe poverty and housing instability stemming from previous cuts.
“There is substantial evidence that core levels of benefits are inadequate,” the report states, underscoring the challenges the next government will face.
Two-Child Limit Policy
Introduced in April 2017, the two-child limit policy prevents parents from claiming child tax credit or universal credit for more than two children. This policy is expected to push 51% of families with three or more children into poverty by 2028-29.
Despite growing pressure, Labour leader Keir Starmer has resisted calls to repeal this policy.
Housing and Homelessness
Freezes on local housing allowances, set against a backdrop of rising rents predicted to increase by 13% by 2027, will exacerbate the risk of homelessness.
The number of families in temporary accommodation has doubled since 2010, highlighting the urgent need for policy reform to address housing instability.
The issue of homelessness is poised to become a significant challenge for the incoming government, demanding immediate and effective intervention.
Pensions and Disability Benefits
Both the Labour and Conservative parties have committed to maintaining the pensions triple lock, guaranteeing state pension increases every April.
However, their strategies differ regarding disability spending. The Tories propose £12 billion in annual cuts, a move deemed unfeasible by the Resolution Foundation without affecting current recipients. Labour has yet to disclose its plans for disability benefits.
Future Challenges for Welfare Reform
“Welfare reform is currently focused on disability-related benefits, which is understandable given that spending is due to rise by £10 billion a year over the next parliament,” noted Alex Clegg, economist at the Resolution Foundation.
“But whoever wins the next election will face wider welfare challenges, from homelessness to childhood poverty,” he added.
The Resolution Foundation’s report underscores the significant financial disparities resulting from the Conservative Party’s welfare reforms. While pensioners have benefited, working-age families, especially those with children, have borne the brunt of the financial losses.
The upcoming government faces the dual challenge of addressing these inequalities and reforming the welfare system to support the most vulnerable populations effectively.