UK spent £1.1 trillion more on benefits than investments

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Government spent £1.6 trillion on working-age benefits over the last two decades – over £1.1 trillion more than capital investment in key infrastructure
London receives more than twice as much public capital investment per person as the North East, East Midlands and Yorkshire and the Humber
Landmark report warns welfare has become an “economic opiate” for Britain’s weakest regional economies

The British state has spent £1.1 trillion more on working-age benefits than on capital investment in key infrastructure over the last two decades, a landmark report reveals today.

Analysis by the Centre for Social Justice found that the state spent approximately £1.6 trillion on working-age benefits between 2006/07 and 2024/25.

This exceeded combined public capital investment in transport, science and technology, economic development, housing and community amenities by more than £1.1 trillion.

The findings are published today in State of Dependency, a 250-page report and part one of the CSJ’s landmark Welfare 2030 inquiry, chaired by former Work and Pensions Secretary Sir Iain Duncan Smith MP.

The report concludes that rising working-age welfare spending has increasingly been used to compensate for weak local economies, low wages and a shortage of productive investment without addressing the conditions that allow worklessness to become embedded.

Between 1949 and 1975, Britain spent an average of around 4.5 per cent of GDP on public investment and 2.5 per cent on benefits for working-age people.

In the following decades those proportions broadly reversed. Spending on benefits for working-age people averaged 5 per cent of GDP between 1975 and 2016, while public investment fell to an average of just 2.5 per cent over the same period.

Today, public investment is 2.9 per cent compared to benefit spending at 4.6 per cent, while working-age benefit spending is up £50 billion in real terms since 2019.

A lack of investment is particularly striking in the areas of concentrated worklessness. Analysis for the report found that between 2000 and 2025, public capital investment in transport and economic development averaged almost £800 per person each year in London. It was less than £370 per person in the North East, East Midlands and Yorkshire and the Humber.

In a further example cited by the CSJ, the state now spends around £38 billion a year supporting housing costs through the benefit system, while only 12 per cent of government housing support goes towards building homes – down from 96 per cent in the mid-1970s.

The report says:

“Welfare is the anaesthetic that has kept areas of the country numbed during two decades of economic failure.

“Weak local economies produce low wages, poor health and worklessness. Welfare compensates people for those outcomes but does very little to address the conditions that produced them. Rising expenditure then leaves less fiscal room for the investment and tax regimes needed to rebuild regional economies.”

In areas across the North East, South Wales, the M62 corridor and parts of the Midlands, economic output per person has barely increased for more than two decades.

Between 1998 and 2023, economic output per person increased by only £880 in Bradford. In Hartlepool and Stockton-on-Tees, annual growth averaged just 0.63 per cent, compared with 2.4 per cent in the London Borough of Camden.

Last year, Knowsley generated just 11 job adverts for every 1,000 workers each month, compared with more than 40 in Manchester.

The report also argues that controlling welfare costs would create the fiscal space to invest in weaker local economies and cut taxes on jobs and enterprise. By the end of this Parliament, working-age benefit spending is forecast to be £30 billion a year higher than in 2024/25 – more than the annual cost of reversing last year’s employer National Insurance increase.

Ben Gregg, Head of Welfare at the CSJ, said:

“For decades, governments have tried to compensate struggling regions for economic decline rather than reverse it, using welfare to numb the pain instead of providing a reason to hope.

“A Britain where everyone has a stake in prosperity is one where good jobs and thriving towns are within reach of every community.

“That is not achieved by writing a cheque and forgetting about people. It comes from investing in these places and removing the barriers that stop businesses doing the same.”

The report identifies 3,369 “welfare hotspots” – collectively home to nearly 900,000 people, a population larger than Leeds – where out-of-work claimant numbers exceed half of the working-age population.

The hotspots can be explored on a new interactive map where viewers can enter their postcode and examine the scale of the welfare crisis.

The working-age benefit bill is set to reach £136.1 billion in 2026/27. The £50 billion increase since 2019/20 is equivalent to approximately £1,200 extra for every income taxpayer.

State of Dependency argues that welfare reform must form part of a wider economic programme to increase productive investment and reconnect people in left-behind communities with employment.