How to cut £25 billion

George Osborne has announced that he wants to take £25 billion more out of public spending, principally from ”welfare’, whatever that is.  He’s previously announced that he intends to cap Annually Managed Expenditure, which is mainly made up of pensions and benefits.  But we’ve also had an announcement that pensions will continue to be protected, and indeed that they will increase.  That means, in principle, that cuts to social security have got to come out of the other benefits.

Despite the headline figure of £25bn, the level of cuts being proposed is rather less than that.  Osborne has explained that the £25bn would actually be cut over two future years:

We’ve got to make more cuts. £17 billion this coming year. £20 billion next year.  And over £25 billion further across the two years after. That’s more than £60 billion in total.

That works out as £15.5bn a year overall.  Further note, 7th January:  The third news release of the day explains that £12bn, or £6bn a year, will come from social security spending.

The prospect of drawing much of this from working-age benefits is limited.   In 2013/14, benefits to pensioners are expected to cost £110bn, and benefits to people of working age and children cost £94bn.   The forecast for 2018/19 is that in real terms these figures will increase to £116bn and £95bn.  The most important benefits in the projected £95 billion include £31.5bn in Tax Credits, £22.7bn in Housing Benefit (the rest goes to pensioners),  £12.5bn in Child Benefit and £18bn for ESA and JSA together.  The sorts of economies that Osborne has suggested – stopping Housing Benefit to people under 25 or means-testing council housing, which won’t save anything because most council housing isn’t subsidised – go nowhere near his target.  The largest benefits for people of working age are Tax Credit and HB, but the design of Universal Credit is set to make major reductions difficult or  impossible.   It’s likely that the cuts will have to extend to pensioners – not just the likes of bus passes and winter fuel, but Housing Benefit,  DLA/PIP and social care support.

Osborne is reported as ‘challenging’ opposition parties to say how they would cover the costs without borrowing or increasing tax.  There are lots of other ways for government to raise money – not to mention lots of other ways to cut expenditure.  There ought to be serious questions, however, as to why any government would want to sign up to a deflationary agenda that will impoverish, not just the most vulnerable people, but the nation as a whole.

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