One week into his premiership, Andy Burnham has signaled a willingness to increase government spending in response to pressing policy challenges, with recent announcements including capped bus fares and removing VAT from electricity bills. However, these initiatives add to a growing list of unfunded promises, and questions are mounting about how his government will finance the additional expenditures.

Among the potential funding options is borrowing through the bond market or increasing taxes, though public tolerance for new tax measures has historically been limited. The most direct and politically feasible approach, analysts say, is to reduce spending in other areas — with welfare emerging as the largest and most consequential target.

The welfare budget in Britain currently amounts to approximately £33 billion annually, accounting for around one-quarter of all government spending. This figure surpasses expenditure on health and social care by two-thirds and has increased by more than 45% since 2010, including a 6% rise this year alone. The Office for Budget Responsibility projects the welfare bill will grow by an additional 4% each year throughout the decade, potentially exceeding 11% of GDP by its end.

Surveys indicate broad public acceptance of welfare spending cuts if they contribute to economic stability. An early-year poll of 3,000 respondents found that even voters aligned with the Green Party and Labour showed majority support for reducing welfare costs under such circumstances. Similarly, an Ipsos poll highlighted significant backing among the general electorate for reallocating welfare funds to address a £15 billion shortfall in Labour’s defence budget plans.

Nevertheless, within the Labour Party and progressive circles, welfare cuts remain highly contentious. Last year, then-Prime Minister Keir Starmer reversed plans to reduce disability benefits by £5 billion following internal opposition, subsequently agreeing to increase spending by £3 billion annually to remove the two-child benefit cap. Burnham has acknowledged this political sensitivity, stating that “crude cuts to welfare… often create a backlash,” reflecting the challenges he faces in pushing reforms.

Nearly half of the welfare expenditure goes toward pensions, which have benefited from the triple lock policy introduced in 2011 to ensure rises keep pace with inflation, wages, or 2.5%, whichever is highest. While the measure helped reduce pensioner poverty, it has also significantly increased costs. Modifying the triple lock to align pension increases with wage growth could save the government close to £16 billion annually, though it may provoke political resistance. The previous government accepted a controversial cut to winter fuel allowances, resulting in £1.4 billion in savings, suggesting some appetite for pension reform exists.

Sickness benefits represent another significant challenge. With over four million recipients of Personal Independence Payments—double the number before the pandemic—and a rise in claims related to mental health conditions, expenditure projections exceed £260 billion by decade’s end. Critics argue the current system can disincentivize employment, with some claimants eligible for pre-tax incomes approaching £30,000 due to overlapping entitlements. Comparisons with European welfare models highlight that other countries often maintain tighter controls and stronger incentives to exit benefits.

Former pensions secretary Sir Iain Duncan Smith has claimed that prior welfare reforms cut the bill by £25 billion while boosting employment, asserting that similar outcomes are achievable again. Even left-leaning think tanks like the Resolution Foundation have identified possible savings by correcting structural inefficiencies, such as the relative generosity of the Universal Credit health component, which attracts increased claims.

It remains uncertain whether Burnham will pursue substantial welfare reforms given the political risks involved. Analysts suggest he may limit action to smaller adjustments, deferring major decisions and leaving the issue for future leadership. The welfare budget’s projected growth continues to pose a significant fiscal challenge amid competing policy priorities.