22OCT

UK welfare ran £2.5bn over in September

2 min read

16:23UTC

The Resolution Foundation said welfare spending ran about £2.5bn above expectations in September, City AM reported, a week before the 28 October Budget.

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Key takeaway

The Resolution Foundation put September welfare spending about £2.5bn above expectations.

The Resolution Foundation, a think tank that studies living standards, said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October⁠¹. The same report said the foundation urged targeted energy support in the Budget.

Pensions sit inside the welfare total, where the January costing of the triple lock by the Office for Budget Responsibility (OBR) already pointed upward. The £2.5bn is the foundation's estimate as relayed by City AM; the OBR will publish its own welfare forecast with the Budget on 28 October.

Deep Analysis

In plain English

Welfare means government payments to people, such as Universal credit, disability benefits and the state pension. Anyone who qualifies can claim, so the total is hard to control. The Resolution Foundation, a research group that studies living standards, says welfare cost about £2.5bn more than expected in September. That matters for the Budget on 28 October. The Chancellor has promised not to raise VAT, income tax or corporation tax, so cutting welfare spending is one of the few big options he has left.

Deep Analysis

Root Causes

Most welfare spending is demand-led: anyone who meets the rules can claim. Spending therefore rises with unemployment, ill health and an ageing population, regardless of what the Budget planned.

Benefits and the state pension are uprated each April with past inflation. When prices rise faster than forecast, the bill climbs months later, even if the number of claimants does not change.

What could happen next?

Consequence
A welfare overrun makes benefit restraint more likely in the 28 October Budget.
Risk
Cuts to disability and incapacity benefits may raise costs for health services and councils.

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: In 2014 George Osborne set a cap on most welfare spending, and the Office for Budget Responsibility later judged it would be breached. Limits written into fiscal rules did not stop demand-led spending from rising.

Counter-parallel: From 2016 to 2020 most working-age benefits were frozen in cash terms, saving billions as inflation eroded their value. A blunt freeze delivered the savings a cap could not, at a cost to the incomes of claimants.

Immediate: a £2.5bn monthly overrun, if typical of the year, would exceed the half-year borrowing overshoot of £6.0bn within three months. The figure is relayed by City AM and Lowdown has not seen the Resolution Foundation's workings.

Structural: the IEA's proposed cash freeze (event 7) and the Conservatives' £23bn target both aim at this line. Any savings depend on reducing claims or real benefit values, both slow to deliver within one Budget year.

Consensus view: The Resolution Foundation, a think tank focused on living standards, reads the overrun as a pressure the Budget must meet, against headroom it put at about £10bn in July. Chancellor John Healey has framed welfare restraint as a moral duty.

Counter-view: The Conservatives go further: shadow work and pensions secretary Helen Whately put welfare savings at £23bn, "just the start". Others argue much of the overrun reflects disability and incapacity claims that rise with health and job losses, so cuts move costs onto the NHS and councils rather than removing them.

Key tension: Whether welfare overruns come from rules that can be tightened or from rising need that cuts would only shift elsewhere.

Sources:City AM

Mentions:Resolution Foundation →City AM →Autumn Budget 2026 →John Healey →George Osborne →Helen Whately →Office for Budget Responsibility →Conservative Party →Universal credit →

First Reported In

Update #5 · Debt passes £3trn, its ratio below forecast

City AM· 22 Oct 2026

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Different Perspectives

Pension Protection Fund

Acting chief actuary Aaron Pang put the rise to 135.0% funded down to liabilities falling 2.1% against a 1.0% fall in assets, reflecting higher gilt yields. On Lowdown's reading, the yields that lift the Treasury's interest bill leave 4,838 company schemes with a £280.7bn surplus that does not reduce state borrowing.

Torsten Bell

The Labour figure wrote on 14 October that the IMF's October figures show the fastest fiscal consolidation in the G7. The IMF forecasts the UK deficit falling from 3.8% of GDP in 2026 to 1.4% in 2031, a squeeze still to be delivered through taxes and spending.

Tax Justice UK

The left-leaning campaign group says ten tax reforms would raise over £60bn a year for public services, and on 22 October asked why higher taxes on extreme wealth remain politically difficult. It offers the tax-led exit to the IEA's cuts; the £60bn is its own claim, not an official costing.

Institute of Economic Affairs

The free-market think tank's Alternative Budget of 19 October would suspend the state pension triple lock for three years, freeze welfare in cash terms and move tax onto a wider VAT. It claims the day-to-day budget returns to surplus in 2027-28, its own projection rather than an official costing.

Resolution Foundation

The living-standards think tank said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October, and its economist Greg Thwaites urged targeted energy support. Its figure lands as a Chancellor who calls welfare cuts a moral duty finalises the 28 October Budget.

Institute for Fiscal Studies

Director Helen Miller said a steady-as-she-goes Budget is not an option, with the IFS putting 2029-30 headroom at about £20bn, The Independent reported on 12 October. The IFS puts the cost of avoiding cuts and funding higher defence at around £35bn of tax rises or benefit cuts, more than any headroom estimate in circulation.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.