A new report warns that spending on working-age benefits has outstripped investment in transport, housing and technology by more than £1.1tn, as ministers face mounting pressure to confront the roots of Britain’s economic stagnation.
For two decades, Britain has spent far more managing the consequences of regional economic decline than trying to reverse it.
Between 2006/07 and 2024/25, the state spent approximately £1.6tn on benefits for working-age people — more than £1.1tn above the combined amount invested in transport, housing, science and technology, economic development and community facilities.
The figures, compiled by the Centre for Social Justice (CSJ), present a stark picture of a country increasingly reliant on welfare to cushion the effects of weak local economies, while investing comparatively little in the jobs, infrastructure and opportunities that might help revive them.
In State of Dependency, a 250-page report forming the first part of the think tank’s Welfare 2030 inquiry, the CSJ describes welfare as an “economic opiate” for Britain’s most disadvantaged regions. Its central contention is that successive governments have treated benefit spending as a substitute for economic renewal, absorbing the human cost of decline without adequately addressing its causes.
The inquiry is chaired by Sir Iain Duncan Smith, the former work and pensions secretary who has long argued for a fundamental overhaul of the welfare system.
The report’s findings go to the heart of one of Britain’s most persistent economic dilemmas: how to support people living in places where good jobs are scarce without allowing a system designed to provide security to become, in the CSJ’s view, a mechanism that perpetuates dependency.
The distinction matters. Benefits provide an essential financial safety net for millions of people, including those unable to work. But the CSJ argues that the balance between social protection and productive investment has shifted so far that the state is spending heavily on the symptoms of economic weakness while neglecting the conditions needed to overcome it.
The change is visible in the long-run spending figures.
Between 1949 and 1975, government spending on public investment averaged approximately 4.5 per cent of gross domestic product, compared with around 2.5 per cent for working-age benefits.
From 1975 to 2016, those proportions broadly reversed. Spending on working-age benefits rose to an average of 5 per cent of GDP, while public investment fell to 2.5 per cent.
Today, the gap remains substantial. Working-age benefits account for 4.6 per cent of GDP, against 2.9 per cent for public investment, according to the report.
The divergence has become more expensive in recent years. Adjusted for inflation, annual spending on working-age benefits has risen by £50bn since 2019/20 and is forecast to reach £136.1bn in 2026/27.
That projected increase is equivalent to roughly £1,200 for every income taxpayer in the country, the CSJ calculates.
The figures are not simply an argument about the size of the welfare state. They raise a more fundamental question about what the state is buying with its money — and whether the distribution of that spending is helping to generate the economic growth needed to sustain it.
The CSJ argues that a rising welfare bill leaves the Treasury with less room to finance infrastructure, support enterprise or reduce the tax burden on employment. The danger, in its analysis, is a self-reinforcing cycle: weak local economies produce unemployment and ill health; the state spends more to alleviate their effects; and the investment needed to expand economic opportunity becomes harder to fund.
The report’s geographical comparisons suggest that the problem is not confined to national spending priorities. It is also reflected in where public investment goes.
Between 2000 and 2025, London received almost £800 per person a year in public investment for transport and economic development. The North East, East Midlands, and Yorkshire and the Humber each received less than £370.
Such differences are particularly striking because some of the areas receiving less investment also face entrenched worklessness and weak economic growth.
In Bradford, economic output per person increased by just £880 in total between 1998 and 2023, according to the report. Hartlepool and Stockton-on-Tees recorded average annual growth of only 0.63 per cent over the same period, compared with 2.4 per cent in Camden.
The disparity extends to the availability of work itself. In Knowsley, there were just 11 job advertisements for every 1,000 workers each month last year. Manchester recorded more than 40.
These figures illustrate the difficulty of treating unemployment as solely an individual problem. Where vacancies are scarce, transport links are poor and local businesses struggle to expand, exhortations to find work can do little to create opportunities that do not exist.
The CSJ’s argument is that welfare policy cannot be separated from regional economic policy. A system that pays people when jobs disappear may protect household incomes, but it cannot by itself generate new employers, improve connectivity or make a struggling town more attractive to investment.
That does not establish that benefit spending caused the decline, or that every pound redirected towards investment would produce a greater economic return. It does, however, put pressure on ministers to explain how their spending decisions are intended to change the prospects of the places most dependent on state support.
Housing offers another example of the shift from investment towards ongoing expenditure.
Around £38bn a year is now spent through the benefits system to help people meet housing costs. Yet only 12 per cent of government housing support is used to build new homes, compared with 96 per cent in the mid-1970s, the report says.
The contrast captures the tension at the centre of the CSJ’s analysis. Housing assistance can prevent families from losing their homes and help people afford accommodation in expensive markets. But when support increasingly pays for existing housing costs rather than expanding supply, the state risks spending more without addressing one of the pressures driving those costs.
Building more homes would not, on its own, resolve the complex causes of housing insecurity or regional deprivation. Planning restrictions, land availability, construction costs and the concentration of employment all influence outcomes. Nevertheless, the figures raise questions about whether public spending is doing enough to expand the stock of affordable accommodation.
The same broader challenge runs through the report: how to move from paying for the consequences of scarcity to increasing the supply of what people need.
The CSJ has identified 3,369 areas it describes as “welfare hotspots”, where out-of-work claimant numbers account for more than half the working-age population.
Together, these areas are home to nearly 900,000 people — more than the population of Leeds, according to the report.
An interactive map published alongside the research allows users to search by postcode and examine the scale of the problem in their own communities.
The concentration of claimants in particular neighbourhoods is central to the think tank’s argument. Persistent worklessness, it contends, can become entrenched when weak labour markets interact with poor health, limited transport, low skills and a shortage of suitable vacancies.
Yet the figures also invite a more careful distinction between dependency and deprivation. A high proportion of out-of-work claimants does not, by itself, establish why people are not working. Nor does it reveal how many face illness, caring responsibilities or other barriers to employment.
The policy challenge is therefore not simply to reduce the number of people receiving benefits. It is to establish what prevents them from working, where employment is realistically available and what combination of support and local economic development could help them enter or return to the labour market.
Without that distinction, a drive to cut expenditure could reduce support without producing the jobs or opportunities needed to make work a viable alternative.
For the CSJ, the urgency is financial as well as social.
By the end of the current Parliament, working-age benefit spending is projected to be £30bn a year higher than in 2024/25. That annual increase alone exceeds the cost of reversing the previous year’s rise in employer National Insurance contributions, according to the report.
The comparison is intended to demonstrate the opportunity cost of a growing welfare bill. If spending continues to rise, the Treasury will face difficult choices over taxation, public services and investment. Reducing the rate of growth could, in principle, release money for other priorities.
But the arithmetic does not settle the policy question. Benefit reductions do not automatically translate into investment, while new infrastructure and economic development programmes require time, effective delivery and evidence that public money is generating additional activity rather than displacing private investment.
Nor can the state assume that every person currently out of work can move immediately into a job. A successful strategy would need to distinguish between those who can work with the right incentives and support, those whose health limits their capacity, and those living in places where employment opportunities remain thin.
The CSJ’s own conclusion is that welfare reform cannot work in isolation. Restraining the benefits bill, it argues, must form part of a wider programme of productive investment — one that makes it easier for businesses to grow, for people to reach work and for struggling towns to attract new economic activity.
Ben Gregg, the CSJ’s head of welfare, said governments had spent decades compensating struggling regions for economic decline rather than reversing it.
“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,” he said.
Gregg argued that prosperity depended on making good jobs and thriving towns accessible to communities that had missed out on economic growth.
“That is not achieved by writing a cheque and forgetting about people,” he said. “It comes from investing in these places and removing the barriers that stop businesses doing the same.”
The political difficulty is that welfare and investment operate on different timescales.
Benefits can provide immediate relief when a household loses its income. New transport links, housing developments and businesses take years to plan, finance and deliver. For people facing hardship today, the promise of future growth is no substitute for financial security.
But the opposite danger is equally clear: if governments repeatedly spend more to manage the consequences of weak local economies without improving the conditions that produce them, the costs can accumulate while the underlying problems persist.
The CSJ’s report is an indictment of that pattern, rather than proof that welfare itself is the cause of Britain’s regional divide. Its spending comparisons establish the scale of the imbalance it identifies; they do not, on their own, demonstrate how much economic decline could have been prevented by a different allocation of public money.
The harder test is whether a change in priorities can deliver both parts of the promise: a welfare system that protects people who need help, and an economy in which fewer people need long-term support because secure work is genuinely within reach.
Britain’s £1.6tn bill is the starting point for that debate. The question it leaves ministers is whether the country can continue to afford the cost of managing regional decline — or whether it can find a credible way to reverse it.
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