The welfare cap does not fit

24 Feb 14
Charlotte Ravenscroft

The cap on annually managed expenditure expected in the Budget is far too blunt an instrument for limiting welfare spending. It will intensify the hardship felt by the most vulnerable claimants

On March 19 the Chancellor is due to present his Budget and is expected to announce further details on his proposals to cap the overall welfare budget, through an ‘Annually Managed Expenditure’ (AME) cap.

At the Budget, the Chancellor will announce fixed annual targets for welfare spending in each of the following four years. The benefits included in the AME cap will include employment support allowance, disability benefits, housing benefit, tax credits and pensioner benefits. State pensions and jobseekers' allowance will remain outside of the cap.

The stated intention for the cap is for it to be a target that guides ministers in their policy-making, ‘shining a light’ on welfare spending decisions.

Last week, the National Council for Voluntary Organisations, along with a group of leading charities, wrote to the Economic Secretary to the Treasury?, warning that the nature of the cap’s annual targets could drive short-term decision-making about social security at the expense of longer-term, preventative measures that would be more effective in lowering demand for welfare support.

Since the welfare cap was first announced in the Spending Review and the Autumn Statement of 2013, NCVO with a group of leading charities – including Oxfam, Age UK, Barnardos, Child Poverty Action Group, Crisis, Mind and Shelter – have been assessing how these annual spending targets would work in practice.

We have also been considering the potential impact of the cap, while recognising the government’s policy intention to bring a greater level of scrutiny to welfare spending.

Our conclusion is that the cap is too blunt a measure, and is likely to incentivise short-term policy decisions. This could result, for example,  in arbitrary cuts to benefits or reduced uprating of benefits.

Without complementary preventative policies to tackle some of the underlying causes for social security spending - unemployment, low pay, housing and childcare costs – we believe that the AME cap will intensify the hardship felt by many individuals and families.

Charities are particularly concerned that disabled people will experience the brunt of any short term measures. We think there are better ways for the social security bill to be reduced.

For example by providing more tailored support for those furthest from the labour market, as well as people with disabilities and older workers, to find work. Also, by improving family support and tackling child poverty, and creating more affordable housing that will reduce reliance on housing benefit.

So we await the Budget in March. If the government proceeds with the AME cap as it stands, we believe it should be set at an appropriate level so that medium and longer term prevention policy actions can be implemented in the early years of the cap. This would reduce the likelihood of arbitrary cuts to be made in the short term.

But ultimately welfare questions are long-term issues which need long-term solutions, not short-term thinking. Longer term policy could be far more effective in reducing demand for social security spending – and improving people’s lives.

Charlotte Ravenscroft is NCVO's head of policy and research

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