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Cost of Living Payments and Welfare Cap

Volume 716: debated on Thursday 23 June 2022

In accordance with HM Treasury’s obligations to operate the welfare cap, set out in the charter for budget responsibility, the Treasury is required to determine items of welfare expenditure within scope of the welfare cap. Today, I would like to inform the House that the cost of living payments, which I announced to this House on 26 May 2022, are outside the scope of the welfare cap.

The welfare cap plays a key role in the fiscal framework, underpinning the Government’s commitment to sustainable public finances over the medium term by setting a predetermined cap for welfare expenditure in a target year, together with a pathway and margin for welfare spending to reach that point. The cap, margin and pathway were last set out by the Government at autumn Budget 2021.

The cap will be breached if spending in scope exceeds the cap plus margin at the point of formal assessment, which will next occur in 2024-25.

The welfare cap is designed to support the management of the more predictable elements of benefit expenditure. It already categorises benefits most directly linked to the economic cycle, such as universal credit payments to jobseekers, as outside the scope of the cap.

The cost of living payments are one-off payments, designed to support millions of the most vulnerable households facing cost of living challenges as a consequence of acute global economic pressures. Given their temporary and exceptional nature, we have therefore taken the decision to categorise these payments as outside the scope of the welfare cap. As the cost of living payments are outside the scope of the cap, they will not form part of the expenditure that will be formally assessed by the OBR against the cap and pathway.