Treasury pushes forward with welfare cap

5 Dec 13
The Autumn Statement provided details of how the cap on overall welfare spending will be work in practice, with the House of Commons having to sanction any breaches

By Judith Ugwumadu | 05 December 2013

The Autumn Statement provided details of how the cap on overall welfare spending will work in practice, with the House of Commons having to sanction any breaches. 

A welfare cap was first mooted in the summer Spending Review, but today Chancellor George Osborne revealed that the cap would be set by the chancellor of the day at the beginning of each Parliament.

‘If the cap is breached, they will have to explain why and hold a vote in this House,’ he said.

‘The principle is clear: the government has a responsibility to taxpayers to control their spending on welfare, and Parliament has a responsibility to the country to hold the government to account for it.’

According to the Autumn Statement document, the cap will be set in nominal terms for each year over the five-year forecast horizon, but will not apply for the first year of the forecast, in order to allow the government time to implement policy changes to bring down spending if necessary. 

The cap will cover £100bn of welfare expenditure, including all benefits including tax credits, income support and the vast majority of Housing Benefit. But state pension – the single biggest item of welfare expenditure – is to be excluded, as will the most ‘cyclical’ benefits for jobseekers.

Including state pensions in the cap would not be fair, Osborne said. ‘[It] would mean cutting pensions for those who’ve worked hard all their lives because the costs on, say, Housing Benefit for young people had got out of control.’

Commenting on the cap, Mike Turley, head of public sector at Deloitte, said Osborne was right to try and bring this area of spending under control.

‘However, when this is implemented, care needs to be taken to ensure that a cap on welfare spending does not lead to increased demand elsewhere,’ he warned. 

‘The possibility for knock-on increases in other public services is something local public service leaders have expressed concerns about.’

Osborne also announced that, from next April, the basic state pension would rise by £2.95 a week.

Planned rises in the state pension age are to be brought forward, Osborne said. The rise to 68 is to be shifted from 2046 to the mid-2030s and the rise to 69 to the late 2040s. The move is projected to save £500bn over the next 50 years.

‘The exact dates will be set by the future statutory reviews and in line with the most up-to-date demographic data, of which the next update is published next week,’ the chancellor said.

‘This is one of those difficult decisions governments have to take if they’re serious about controlling the public finances… Young people will know our country can afford to give them a proper pension when they retire.’

But Unison general secretary Dave Prentis called the hike in the state pension age 'cruel and unnecessary'.

He said: 'It may be ok for the better off to work until they are 70 because they will have some years to enjoy their retirement. But for millions, they will never see their pension because they will die before that age. 

'Does anyone seriously expect a 70-year old paramedic or nurse attending them in a medical emergency? And should we expect people who sweep our streets, clean our hospitals and schools to carry on doing those jobs?' 

Sonel Mehta, head of actuarial resourcing at consultants Hazell Carr, also noted that manual workers and those on lower incomes would be more severely penalised from any increases to the state pension age.  

‘Their life expectancy tends to be lower and therefore they already receive the state pension for fewer years than someone perhaps more well off who will have contributed for the same length of time,’ she said.

Mehta added that although life expectancy was increasing, healthy life expectancy was not quite the same thing. ‘This should form an important part in any decision-making on changes to the state pension,’ she urged. 


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