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The unmentionable in Osborne's plan to cap the benefits bill: pensioners The unmentionable in Osborne's plan to cap the benefits bill: pensioners
(6 months later)
Is the benefits bill spiralling? Recent polling indicates that two-thirds of people are convinced that the welfare system is "broken". And ministers continually remind us that benefits are "out of control". At the same time, George Osborne has called for an open discussion about the welfare state. But an increasingly shrill debate has become untethered from the facts. And we seem to be stuck in what psychologists call an availability cascade, where claims harden into fact by continual repetition.Is the benefits bill spiralling? Recent polling indicates that two-thirds of people are convinced that the welfare system is "broken". And ministers continually remind us that benefits are "out of control". At the same time, George Osborne has called for an open discussion about the welfare state. But an increasingly shrill debate has become untethered from the facts. And we seem to be stuck in what psychologists call an availability cascade, where claims harden into fact by continual repetition.
In order to "go on tackling the growth in welfare benefits spending", in the budget the chancellor announced his intention to impose a limit on social security spending. This little-noticed plan should focus attention on what we mean by welfare and what drives it. So will there be any future growth in welfare benefits to "go on tackling"? And if so, what's the cause?In order to "go on tackling the growth in welfare benefits spending", in the budget the chancellor announced his intention to impose a limit on social security spending. This little-noticed plan should focus attention on what we mean by welfare and what drives it. So will there be any future growth in welfare benefits to "go on tackling"? And if so, what's the cause?
Our analysis at the Social Market Foundation, published on Monday, shows that benefit spending has risen substantially in recent years and is set to go on rising over the next five years. Working-age welfare added £17bn to annual spending between 2007 and 2012, as the recession hit. But it is set to fall in the coming years, as unemployment falls – causing housing benefit, tax credits and jobseeker's allowance claims to go down – and government cuts take effect. Pensioner benefits, on the other hand, make up more than half of benefits spending – some £111bn this year – and are set to go on rising in the years ahead.Our analysis at the Social Market Foundation, published on Monday, shows that benefit spending has risen substantially in recent years and is set to go on rising over the next five years. Working-age welfare added £17bn to annual spending between 2007 and 2012, as the recession hit. But it is set to fall in the coming years, as unemployment falls – causing housing benefit, tax credits and jobseeker's allowance claims to go down – and government cuts take effect. Pensioner benefits, on the other hand, make up more than half of benefits spending – some £111bn this year – and are set to go on rising in the years ahead.
Yet the chancellor also said he wanted to impose the benefit limit in a way that allows "automatic stabilisers" still to operate. In other words, he wants working-age benefits that rise during recessions to continue to be responsive to the state of the economy. This may be where most people switched off, but it's an important point. Our analysis shows that the working-age benefits most responsible for recent spending increases are precisely the ones that have grown as a direct result of the recession and subsequent economic stagnation.Yet the chancellor also said he wanted to impose the benefit limit in a way that allows "automatic stabilisers" still to operate. In other words, he wants working-age benefits that rise during recessions to continue to be responsive to the state of the economy. This may be where most people switched off, but it's an important point. Our analysis shows that the working-age benefits most responsible for recent spending increases are precisely the ones that have grown as a direct result of the recession and subsequent economic stagnation.
Any benefits limit that constrains spending will therefore force a trade-off between working-age welfare and pensions. The chancellor can impose a benefits cap, but he will have to choose between allowing those automatic stabilisers to cushion the economy and protecting pensioner entitlements. If he wants to do the former, he can't do the latter.Any benefits limit that constrains spending will therefore force a trade-off between working-age welfare and pensions. The chancellor can impose a benefits cap, but he will have to choose between allowing those automatic stabilisers to cushion the economy and protecting pensioner entitlements. If he wants to do the former, he can't do the latter.
Pensioner benefits are politically untouchable at present. The prime minister recently reaffirmed his commitment to them, saying that it is "working-age welfare that requires the attention". The likely consequence of a cap is that already falling working-age benefits will be cut further to accommodate rising pensioner spending.Pensioner benefits are politically untouchable at present. The prime minister recently reaffirmed his commitment to them, saying that it is "working-age welfare that requires the attention". The likely consequence of a cap is that already falling working-age benefits will be cut further to accommodate rising pensioner spending.
The government has made deep cuts to working-age welfare already, without the need for any kind of limit – some sensible, some less so. So what is the real purpose of a benefits cap? Its only real virtue appears to be a rhetorical one: to lump together a number of different elements of spending that have no necessary association, cutting some benefits when others rise. A cap would confuse rather than clarify public policy choices about the shape of the welfare state and the things the electorate wants its money spent on. If we want an honest – and sober – debate about welfare, that kind of obfuscation won't help.The government has made deep cuts to working-age welfare already, without the need for any kind of limit – some sensible, some less so. So what is the real purpose of a benefits cap? Its only real virtue appears to be a rhetorical one: to lump together a number of different elements of spending that have no necessary association, cutting some benefits when others rise. A cap would confuse rather than clarify public policy choices about the shape of the welfare state and the things the electorate wants its money spent on. If we want an honest – and sober – debate about welfare, that kind of obfuscation won't help.
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