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.
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‘Benefits that reflect the state of the economy’ are more than just JSA. ESA is also affected, because some people with a disability or illness who manage to get a job during a boom but lose it in a recession will go back on to ESA, not JSA. Pensions will also be affected because in a recession some people over retirement age will drop out of the labour force and start claiming. Income support will be affected because recessions create more poverty. For instance there is evidence that unemployment leads to relationship breakdown and therefore more lone parent families (see Rowthorn, R., and Webster, D. (2008) Male worklessness and the rise of lone parenthood in Britain. Cambridge Journal of Regions, Economy and Society (1). pp. 69-88 – we hope to update this analysis when the full results of the 2011 Census are available).
The acknowledgment by both the major parties of the need to protect the automatic stabilizers does underline the economic illiteracy of the whole current anti-‘welfare’ campaign. The populace who opinion surveys indicate resent the high level of social security payouts actually need those payouts. Without them, economic activity would decline further, their own incomes would fall and many of them would be out of a job too. Unless of course they are complaining about the excessive generosity of UK retirement benefits – but then everyone agrees that the British population suffer from a level of retirement provision which is almost uniquely poor for such a rich country.