Welfare Payments Surpass Minimum Wage Amid Labour Market Crisis in UK

New analysis reveals that over one million Britons receive state benefits surpassing the national minimum wage, with a growing number being parked on welfare due to mental health conditions. According to research by the Centre for Social Justice, these individuals claim a combination of sickness, disability, and housing benefits amounting to at least £25,000 per year, compared to the projected £22,500 annual take-home pay for full-time minimum wage workers in 2026.

Many claimants are not obliged to seek employment as they qualify for sickness benefits worth around £5,000 a year. Although the Government plans to halve these payments for new claimants from April, current beneficiaries will retain their entitlement, remaining exempt from job search requirements. Fiscal forecasts from the Office for Budget Responsibility indicate that welfare payments linked to ill health could approach £100bn by the end of the decade, propelled by a surge in mental health conditions since the pandemic. Over two-thirds of new universal credit health assessments now involve mental health issues, and personal independence payment (PIP) claims for anxiety and depression have trebled since 2019.

Concerning trends emerge for younger people as well, with one million under-25s now not engaged in work or training. The Centre for Social Justice cautions that this risks consigning a whole generation to lifelong dependence on welfare. Efforts to implement reforms aimed at curbing the welfare bill met resistance earlier this year, as backbench Labour MPs compelled Chancellor Rachel Reeves to dilute proposed changes to disability and incapacity benefits. The result, according to the Institute for Fiscal Studies, is minimal anticipated savings this decade.

Recommendations from the Centre for Social Justice include a thorough overhaul of benefits paid to people with mild anxiety, depression, or ADHD, a group estimated at 1.1 million. Projected savings from such reforms could reach £7.4bn by decade’s end, with £1bn allocated to expand mental health and employment support programmes. Joe Shalam, the think tank’s policy director, emphasises the economic and moral imperative: with determined reform, lives can be transformed, spending reduced, and economic dynamism restored.

Meanwhile, a separate analysis highlights business challenges arising from the nation’s sickness crisis. Companies across the UK contend with heightened staff shortages caused by long-term sickness, which in turn fuels wage growth and inflation. Nearly 2.8 million working-age adults are now economically inactive due to ill health, significantly higher than pre-pandemic levels. Among part-time workers, nearly half a million attribute their failure to pursue full-time employment to health concerns, more than doubling over the last decade. Absences have also risen sharply among those in steady work, with mental ill-health now the foremost cause of long-term sickness in the civil service.

This acute shortage of workers impedes the Bank of England’s mission to rein in inflation, with wage pressures keeping annual price increases stubbornly high at 3.8 percent. Analysts warn that without a major shift, the UK will struggle to achieve its 2 percent inflation target short of a recession. In response, the Department for Work and Pensions underscores ongoing efforts to reform social security, supporting sick or disabled people into secure employment and committing billions to tailored support programmes, while reviewing benefit assessment processes to strike a fair and sustainable balance for the future.