Burnham faces £6bn bill for welfare reform

Andy Burnham will be told to spend up to £6bn more on getting people back into work in a major welfare review, The Telegraph understands. Alan Milburn, a former Labour health secretary, will use his report on youth unemployment later this month to point to higher spending on job support measures in Germany and Denmark, suggesting that Britain follows their example. The UK spends around 0.1 per cent of GDP – £3.7bn a year – on helping people into work, but European neighbours with lower levels of youth unemployment spend much more.

In Germany , where 7.5 per cent of young people are unemployed, the government spends 0.3 per cent of GDP on job support, including wage subsidies for workers up to the age of 29. In Denmark , where young disabled people can take on state-subsidised “flexi jobs” with lower working hours, the government spends 0.4 per cent of GDP on employment support. Milburn’s ‘invest to save’ model The UK’s youth unemployment rate stands at 15.6 per cent.

Increasing spending to 0.3 per cent of GDP would cost more than £6bn a year, which would require cuts to other Whitehall budgets or tax increases. Mr Milburn’s review will suggest a major expansion of work programmes in the UK under an “invest to save” model involving high up-front costs for the Treasury. He will argue that significant investment in employment support, not benefit cuts, is the best way to encourage almost a million young people in Britain to join the workforce and cut youth unemployment.

The Telegraph understands he will not call for an immediate increase in spending to the level of other European countries, but suggest that their models could be followed in the long term. Labour is under pressure to cut the welfare bill , which the Office for Budget Responsibility (OBR), Britain’s fiscal watchdog, estimates will rise from £353bn this year to £431bn in 2032. On Friday, Mr Burnham admitted that the cost of welfare would continue to rise even after his planned reforms, telling Times Radio they would require “investment up front” and that “in time, the savings will come”.

However, he said the cost of measures recommended by Mr Milburn would not directly add to the welfare bill, arguing that any additional spending would be on “investment in the support that teenagers need and the guarantees that I want to put in place for them”. The Telegraph revealed last month that the welfare bill will continue to rise at least until after the next election. It has not been confirmed that the issue will be addressed in Mr Burnham’s 10-year plan for government , which has been earmarked for publication in December or January.

Mr Burnham and Pat McFadden , the Work and Pensions Secretary, will instead respond to the Milburn review with new policy and legislation to change benefit entitlements in the next King’s Speech, which is likely to take place in April. The Prime Minister will then use next year’s Spending Review to “re-prioritise” existing Whitehall budgets to fund the measures, rather than increasing taxes. Downing Street is hoping to avoid a repeat of the fiasco over welfare reform under Sir Keir Starmer last year, when Labour MPs forced him to abandon plans to cut £5bn from the benefits bill by 2030 .

The Treasury is insistent that any new plans must be fully costed from existing budgets to maintain the confidence of the bond markets and avoid a spike in the cost of government borrowing. The Telegraph understands that the health and education budgets have been provisionally earmarked for spending cuts to fund Mr Milburn’s reforms, because both departments will be involved in delivering the policies. Schemes that never delivered However, ministers are already concerned that the job support measures would not be “scored” – with their impact calculated and verified – by the OBR.

Officials at the OBR said this week they would apply “quite a high bar” before factoring the employment benefits of such programmes into future forecasts, highlighting how previous governments had failed to deliver on their commitments. In its latest forecasts, it pointed to two schemes announced under the previous government. One, an extension of NHS Talking Therapies, was expected to increase employment by 10,000 but was never delivered.

The other, the Connect to Work programme, was forecast to increase employment by around 25,000, but is now expected to support around a third fewer participants than envisaged by 2028-29. Tom Josephs, an OBR official, said: “What we found in these cases is that big changes to delivery and funding after the initial announcement meant that the programmes looked very different from the ones we originally scored. “So we have to have quite a high bar in the future for including impacts from these sorts of programmes in the forecast.”

A spokesman for the Department for Work and Pensions said: “The Milburn and Timms Reviews, due to report in November, will lay the foundation for sustainable reform, and we will not pre-empt their findings. “We are already changing the system through the Youth Guarantee, which includes £2.5bn investment in youth employment over the next three years to support almost one million young people and help deliver up to 500,000 opportunities to earn and learn.”