The Treasury manages public spending within two ‘control totals’ of about equal size:
- departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
- annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.
Social security and tax credits together are the biggest source of AME spending, with state pensions spending the biggest item in the social security budget. For people reaching the state pension age before April 2016, there were two tiers to the state pension: the basic state pension (which currently pays £119.30 a week) and additional state pensions related to earnings. For people reaching the state pension age from April 2016 onwards, a new single-tier state pension (which currently pays £155.65 a week) has replaced the two-tier system. The state pension is uprated each year in line with the ‘triple lock’ that states it will rise by the highest of CPI inflation, average earnings growth or 2.5 per cent – a more generous uprating policy than for working-age benefits and tax credits or child benefit.
In our latest forecast, we expect state pensions spending in 2016-17 to total £91.6 billion, with 12.9 million recipients paid an average of £7,100 each. That would represent around 12 per cent of total public spending, and is equivalent to £3,300 per household and 4.7 per cent of national income .