Both major parties have announced a commitment to a cap on social security expenditure. In the last budget, George Osborne announced he was going to fix the level of Annually Managed Expenditure, a term which refers to the element of the budget that isn’t set within cash limits. On Wednesday, Ed Miliband announced that he, too, intended to fix the budget, with a three-year cap on social security payments. Beyond that, Miliband pledged to address only “structural social security spending” while Osborne said his cap “will be designed in a way that allows the automatic stabilisers to operate to support the economy.” Both Osborne and Miliband have said that they won’t cut benefits that reflect the state of the economy – apparently a pledge to maintain JSA.
Social security expenditure has not been capped in the past, because it’s been considered that the government was bound to honour entitlements secured by contributions. The bill is not increasing because of out of work benefits; the proportion of GDP spent there has fallen, and in recent years gross expenditure has been fairly static. The two elements that have increased are benefits for those in work, and pensions; but payments to older people are much the greatest part both of the overall bill, and projected future increases. It may be possible to trade off increases in pensions against cuts in other benefits to hold expenditure level, but the scope to do this is very limited – and that is not the same process as capping the benefit bill. If pensions are not capped, there is no way of holding benefit expenditure level. Yesterday, Ed Balls, the Shadow Chancellor, explained that he does indeed intend to cap pensions.