By Richard Johnstone | 29 January 2015
Government cuts to benefits mean total welfare spending will be £16.7bn lower by the end of the parliament than it would have been without the changes, the Institute for Fiscal Studies has found.
Examining coalition reforms as part of its Election Briefing series, the economic think-tank found welfare spending in 2015/16 will be around £220bn. This is around 7% below what would have been spent due to changes including the so-called bedroom tax and the annual £26,000 household benefit cap,
However, these highest profile reductions raised very little in savings, the IFS found.
Combined savings from the ‘bedroom tax’ and the benefit cap were £650m, while the biggest spending reductions came from broad-based changes.
Over half of the total (£9bn) was saved from two changes to how benefits are increased every year. Changing the standard uprating from the Retail Prices Index measure of inflation to the lower Consumer Prices Index will save £4.3bn in 2015/16, while cash freezes to Child Benefit and parts of Working Tax Credit, and the 1% increases in most working-age benefits for three years, are forecast to save a further £4.7bn.
The decision by the government to withdraw Child Benefit from families where someone has a taxable income of over £50,000 reduced spending by £1.9bn.
The IFS highlighted that both these policies would need to be revisited by the next government.
Although the move away from RPI was sensible, decisions to cap benefits at levels lower than inflation were ad hoc, and meant most working-age benefits were subject to a ‘reverse double lock’ the report stated.
‘That is the government has justified below-inflation increases on the grounds that earnings have been rising less quickly than prices. To continue on that route would mean that working-age benefits rise less quickly than both earnings and prices over time – which does not seem a sustainable long-term policy.’
Means-testing Child Benefit on the basis of taxable income of individual family members was out of step with the rest of the system, and left the payment in ‘a strange sort of limbo’, the report stated. ‘That will surely require further attention.’
