ICAEW chart of the week - Department for Work & Pensions

The Department of Work & Pensions (DWP) published its latest Annual Report & Accounts last week, reporting that it spent £188bn in the year ended 31 March 2019 - just under a quarter of all government spending.

As illustrated by the #ICAEWchartoftheweek, £110bn of DWP's operating expenditure went on the state pension and other support for pensioners, with £53bn going to support people with disabilities or health conditions (or their carers). Benefits to those in or looking for work amounted to £19bn, while £6bn was spent on running costs, around half of which was on DWP staff. The total includes around £21bn of funding provided to local authorities to pay for housing benefit.

This is not the complete picture for social welfare, as HMRC, other government departments, devolved administrations and local authorities also fund benefits such as tax credits, child benefit, war pensions and council tax benefit, to name just a few.

Less than half of the DWP's spending was funded through the annual estimates process authorised by Parliament, with £102bn (including the £97bn for the state pension) coming from the National Insurance Fund. Despite the name, this is in reality the disbursement of money contributed by current workers and their employers, not from amounts 'paid in' by previous generations.*

The complexity of the welfare system means that benefit spending is particularly prone to fraud and error, with estimated overpayments of £4.1bn and underpayments of £2.0bn in 2018-19.  Excluding the state pension, the rates of gross overpayment and underpayment were 4.6% and 2.2% respectively, although the DWP did manage to recover £1.1bn in overpaid amounts during the year.

The front section of the Annual Report provides a detailed review of DWP's activities during the year, including the controversial roll-out of Universal Credit, which brings together six existing benefits into a single payment. The report contains extensive discussions on the issues with Universal Credit, including a much higher level of overpayments than for other benefits (8.6%) and the expectation that 6.5 million households will be in receipt of Universal Credit by the mid-2020s.

Unfortunately, very few people will read the full Annual Report & Accounts of government departments such as the DWP. They contain a huge amount of useful information on how the government is using our money, so are well worth looking at.

* The National Insurance Fund typically contains between two and three months' worth of national insurance receipts as a 'float', but apart from that there are no other fund investments available to pay for benefits.

To read DWP's Annual Report & Accounts 2018-19 please visit:

https://www.gov.uk/government/publications/dwp-annual-report-and-accounts-2018-to-2019

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