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MPs to vote on 1% cap on annual benefit increases Clegg: Benefits rise cap is vital to cutting deficit
(about 2 hours later)
MPs are to vote on controversial government plans to put a 1% cap on annual rises in working-age benefits and some tax credits until 2016. Nick Clegg has defended the government's plans to place a 1% cap on annual rises in working-age benefits and some tax credits until 2016.
Benefits have historically risen in line with the rate of inflation, and increased by more than 5% in 2012-3. Labour urged the deputy PM and his Liberal Democrat colleagues to oppose it when the Commons votes later, saying it would "leave millions worse off".
Labour, which opposes the cap, says it will result in a real-terms cut in support for millions of working people. But Mr Clegg told MPs services such as schools and the NHS would suffer unless the cap was imposed.
The coalition says public sector pay is capped at 1% and benefits should not be rising at a faster rate than wages. Benefits have historically risen in line with the rate of inflation.
Work and Pensions Secretary Iain Duncan Smith said inaction would leave the UK "bankrupt", and that "like Greece and like Spain... we'll have huge borrowing costs". The House of Commons will vote at about 19:00 GMT on the Welfare Benefits Uprating Bill, which would keep the benefit rises to 1% for three years from next April.
He told BBC Radio 4's Today programme the last Labour government had created an "outrageously messy system", which had to be reformed. 'Compassion'
'Not demonised' The coalition argues this is necessary to reduce the deficit, and is fair at a time when public sector pay is being capped and salaries in the private sector are rising below the rate of inflation.
Mr Duncan Smith added that benefits payable to pensioners, including the Winter Fuel Allowance, were not being capped because older people had "less flexibility" and did not have the option of finding work. But Labour, which opposes the cap, says it will result in a real-terms cut in support for millions of working people.
"We are all going to be pensioners at some time. No-one is going to be demonised on my watch," he promised. Some Lib Dem MPs, including John Leech and former minister Sarah Teather, are expected to rebel against the government, although the coalition is thought likely to win the vote.
No cap could be placed on pensioners' benefits during this parliament, Mr Duncan Smith argued, as the Conservatives had made a "clear commitment" to this in their 2010 general election manifesto. Legislation is needed to implement changes announced by Chancellor George Osborne in last month's Autumn Statement - to cap increases in jobseeker's allowance, employment and support allowance, income support and elements of housing benefit.
Prime Minister David Cameron and his deputy Nick Clegg have said they do not "relish" imposing the cap but argue billions of pounds of further savings are needed and have challenged Labour to come up with an alternative.
Legislation is needed to implement changes announced by Chancellor George Osborne in last month's Autumn Statement - to cap increases in jobseeker's allowance, employment and support allowance, income support and elements of housing benefit at 1% for three years from April.
The cap would also apply to maternity allowance, sick pay, maternity pay and paternity pay as well as the couple and lone parent elements of the working tax credit and the child element of the child tax credit.The cap would also apply to maternity allowance, sick pay, maternity pay and paternity pay as well as the couple and lone parent elements of the working tax credit and the child element of the child tax credit.
'Vulnerable'
These benefits traditionally rise in line with consumer prices in an annual process known as "uprating".These benefits traditionally rise in line with consumer prices in an annual process known as "uprating".
They increased 5.2% this year and without the planned change would have been set to rise by 2.2% - the rate of CPI inflation last September, on which the figure is calculated. The rate of inflation has since risen to 2.7%.They increased 5.2% this year and without the planned change would have been set to rise by 2.2% - the rate of CPI inflation last September, on which the figure is calculated. The rate of inflation has since risen to 2.7%.
Ahead of the debate, during Deputy Prime Minister's Questions, Labour's Deputy Leader, Harriet Harman, said: "If he votes for the Welfare Benefits Uprating Bill tonight, the deputy prime minister will be voting to make millions of families worse off."
Glance at the spreadsheets and the scale of the saving is apparent.Glance at the spreadsheets and the scale of the saving is apparent.
Figures in the Autumn Statement show raising many benefits and tax credits by 1% a year will save £2.8bn in 2015/16, compared with the government's previous plans.Figures in the Autumn Statement show raising many benefits and tax credits by 1% a year will save £2.8bn in 2015/16, compared with the government's previous plans.
The overall welfare budget in 2011/12, as calculated by the Institute for Fiscal Studies, is £201bn.The overall welfare budget in 2011/12, as calculated by the Institute for Fiscal Studies, is £201bn.
The political debate will centre on who should feel the pain.The political debate will centre on who should feel the pain.
Jobseekers Allowance totals 2.4% of the total bill, according to the IFS. Benefits for those on low incomes make up just under 21%.Jobseekers Allowance totals 2.4% of the total bill, according to the IFS. Benefits for those on low incomes make up just under 21%.
Those for elderly people, including the state pension, make up over 42%.Those for elderly people, including the state pension, make up over 42%.
The estimated value of fraud and error overpayments in benefit expenditure in 2011-12 is £3.2 billion.The estimated value of fraud and error overpayments in benefit expenditure in 2011-12 is £3.2 billion.
Mr Duncan Smith said welfare payments had risen by about a fifth over the past five or six years while incomes had increased by only a tenth over the same period. She added that the reduction of top-rate income tax from 50% to 45% would leave people earning a million pounds a year a good deal "better off", saying: "The government has failed on fairness, as well as compassion."
Ahead of Tuesday's vote, Labour leader Ed Miliband said the move showed the government had the wrong priorities, contrasting the planned cap with its decision to cut the top rate of tax for those earning more than £150,000 a year. Mr Clegg agreed the cap would affect "people both in and out of work", but added that it was needed to make savings.
"By cutting the support that working families get - and more than 60% of those affected by the changes we are voting on are working families - that is going to be handicapping and stopping working families who want to get into work and do the right thing," he said. He said: "The challenge for her [Ms Harman] and her party is firstly to explain to this house and the British people why she can support a 1% pay [increase] limit to doctors, nurses and teachers in the public sector and not back this approach.
He rejected reports some Labour MPs had misgivings about being seen to back an inflation-linked rise in benefits when most people had seen a real-terms cut in wages in recent years. "What we are voting for is a fairer way forward," he said. "And where is she going to find the £5bn that the measures are going to save in the next three years?"
"What we are saying is at a time when you are cutting taxes for the richest in society, that you penalise the most vulnerable in society and those going out to work, those people doing the right thing, the strivers that Mr Cameron says he stands for, it absolutely does not add up and it is the wrong thing to do." Mr Clegg also praised the government's decision to raise the threshold at which people start paying basic income tax, saying this was helping poorer households in particular.
Labour said it wanted to introduce a compulsory job guarantee - where a person unemployed for a couple of years will no longer receive jobseekers allowance, and they will have to take a job, or be helped towards getting one. Earlier, Work and Pensions Secretary Iain Duncan Smith said inaction on benefits would leave the UK "bankrupt", and that "like Greece and like Spain... we'll have huge borrowing costs".
Former Liberal Democrat minister Sarah Teather has said she will oppose the government's proposal, as she is "deeply anxious" about the impact it will have on the poorest in society. She accused ministers of using language reminiscent of "playground politics" to justify the move. He told BBC Radio 4's Today programme the last Labour government had created an "outrageously messy system", which had to be reformed.
It is not clear how many other Lib Dem MPs are likely to defy the government but the coalition is still expected to win the vote - expected at around 1900 GMT - on the second reading of the Welfare Benefits Uprating Bill. Mr Duncan Smith added that benefits payable to pensioners, including the Winter Fuel Allowance, were not being capped because older people had "less flexibility" and did not have the option of finding work.
'Reasonable' No cap could be placed on pensioners' benefits during this parliament, Mr Duncan Smith argued, as the Conservatives had made a "clear commitment" to this in their 2010 general election manifesto.
Lib Dem deputy leader Simon Hughes said the move was "reasonable" given the "decent" rise in benefits in recent years and pressure on pay in the public and private sectors. Labour says it wants to introduce a compulsory job guarantee - where a person unemployed for a couple of years will no longer receive jobseekers allowance, and they will have to take a job, or be helped towards getting one.
The cap, which will not apply to disability benefits, the state pension or pension credit, is estimated to generate annual savings of £1.9bn in cash terms by 2016. Former Lib Dem Education Minister Sarah Teather has said she will oppose the government's proposed cap, as she is "deeply anxious" about the impact it will have on the poorest in society.
The Department for Work and Pensions published research last week suggesting jobless benefits rose by 20% in the last five years, compared with an average 12% rise in private sector pay. Fellow Lib Dem MP John Leech said: "I strongly support raising the tax threshold for low paid workers, but this cut will wipe out much of that good work."
But campaigners argue the cap will see many families struggling.
"From a nurse with two children losing £424 a year by 2015, to the Army second lieutenant with three children losing £552 a year, this will hit children and families from all walks of life," Matthew Reed, chief executive of The Children's Society, said.
"Failure to make sure that benefit rates at the very least reflect rises in the cost of living will deepen inequality and increase poverty."
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