Covid crisis pushes working age benefit payouts towards £140bn

The Chancellor has warned that surging borrowing meant 'hard choices' ahead on taxes and spending

Working age benefits payments are poised to spike to almost £140bn this year as soaring unemployment, falling pay and hikes to universal credit push the Government’s costs to a record high.

In total, they will amount to 7pc of gross domestic product (GDP), the Institute for Fiscal Studies predicts, up from 5pc before the crisis.

This is the highest share of GDP since records began in the Seventies, jumping from £104bn last year to around £139bn this year.

It comes after Rishi Sunak, the Chancellor, warned that surging borrowing meant “hard choices” ahead on taxes and spending.

He ramped up benefits earlier this year to ease the strain on families hit by the coronavirus crisis and the recession, and has to decide whether or not to let those increases expire.

This includes an extra £1,000 per year for jobless universal credit claimants, which is due to end in April 2021; higher housing benefit for private renters; and the suspension of the minimum income floor for self-employed claimants of universal credit.

The increases account for around £9bn of the overall rise in working age benefits. “Even in its optimistic scenario, the Office for Budget Responsibility thinks that the hit to the labour market from the Covid crisis will increase benefit spending by £17bn this year, and that’s before you account for the £9bn of temporary welfare measures the Government has brought in,” said economist Tom Waters at the IFS.

“Together, this will take benefit spending to easily its highest level on record.”

He added: “Just allowing these temporary giveaways to expire would certainly go some way to cutting this figure, but would mean significant declines in income for the millions of affected ­families.”

If Mr Sunak chose to make the hike in universal credit permanent, the IFS estimates it would cost the Government £6.6bn per year, or 10pc of the bill for that benefit.

However, this would also avert a cut in income of 13pc for the average of the four million families in receipt of universal credit, and as much as 21pc for single childless homeowners on the benefit.

Making the higher housing allowance permanent would cost around £1bn per year.

The Government is currently on track to borrow around £370bn this year, with the national debt already exceeding 100pc of GDP for the first time since the Sixties.