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Cabinet tensions surface as chancellor plans tighter squeeze on welfare Cabinet tensions surface as chancellor plans tighter squeeze on welfare
(5 months later)
George Osborne is expected to include caps on the total housing benefit bill and on tax credits as part of a radical reshaping of how the Treasury controls expenditure.George Osborne is expected to include caps on the total housing benefit bill and on tax credits as part of a radical reshaping of how the Treasury controls expenditure.
Individual departments are due to submit their bids for the 2015-16 spending round on Tuesday, with the chancellor due to announce his decisions in June.Individual departments are due to submit their bids for the 2015-16 spending round on Tuesday, with the chancellor due to announce his decisions in June.
In a sign of the pressure on government spending, the work and pensions secretary, Iain Duncan Smith, has appealed to wealthier pensioners to hand back universal perks such as free TV licences, winter fuel allowance and free bus passes. The cost of these benefits is roughly £3.5bn, but David Cameron has ruled out means-testing them.In a sign of the pressure on government spending, the work and pensions secretary, Iain Duncan Smith, has appealed to wealthier pensioners to hand back universal perks such as free TV licences, winter fuel allowance and free bus passes. The cost of these benefits is roughly £3.5bn, but David Cameron has ruled out means-testing them.
The idea of wealthy pensioners returning their benefits to the government was immediately rejected by many of Duncan Smith's cabinet colleagues as unworkable, and his aides stressed his suggestion in a Sunday newspaper interview was not a policy, but an aspiration.The idea of wealthy pensioners returning their benefits to the government was immediately rejected by many of Duncan Smith's cabinet colleagues as unworkable, and his aides stressed his suggestion in a Sunday newspaper interview was not a policy, but an aspiration.
Nick Clegg said the idea did not make sense.Nick Clegg said the idea did not make sense.
The row reflects the tensions within the cabinet over how to control welfare spending. Osborne, in a major innovation, is planning to put a cap on some working-age welfare bills. So far he has capped at £26,000 a year the amount an individual can receive in benefits.The row reflects the tensions within the cabinet over how to control welfare spending. Osborne, in a major innovation, is planning to put a cap on some working-age welfare bills. So far he has capped at £26,000 a year the amount an individual can receive in benefits.
In the March budget Osborne said: "We will now introduce a new limit on a significant proportion of annually managed expenditure [AME]." AME covers state pensions, working-age benefits and debt interest.In the March budget Osborne said: "We will now introduce a new limit on a significant proportion of annually managed expenditure [AME]." AME covers state pensions, working-age benefits and debt interest.
Since the government cannot unilaterally reduce debt interest, and it is assumed that state pensions will continue to be uprated, Osborne's cap will mainly fall on tax credits, housing benefit and possibly some disability benefits.Since the government cannot unilaterally reduce debt interest, and it is assumed that state pensions will continue to be uprated, Osborne's cap will mainly fall on tax credits, housing benefit and possibly some disability benefits.
The Liberal Democrats have not yet said whether they will support the cap, but the idea is causing deep concern in some Labour circles. They fear Osborne will map out how he plans to cap welfare budgets over the next parliament, and then challenge Labour to say whether it will match the totals.The Liberal Democrats have not yet said whether they will support the cap, but the idea is causing deep concern in some Labour circles. They fear Osborne will map out how he plans to cap welfare budgets over the next parliament, and then challenge Labour to say whether it will match the totals.
Nick Pearce, the director of the left-of-centre IPPR thinktank, said: "The chancellor wants to make explicit provision for cutting working-age welfare in the coming spending round. His coalition partners can prevent him identifying specific welfare cuts, but as chancellor he is well within his rights to set overall spending totals and to force others to accept those as the new framework for political debate."Nick Pearce, the director of the left-of-centre IPPR thinktank, said: "The chancellor wants to make explicit provision for cutting working-age welfare in the coming spending round. His coalition partners can prevent him identifying specific welfare cuts, but as chancellor he is well within his rights to set overall spending totals and to force others to accept those as the new framework for political debate."
In 2012, departmental spending on public services was £375.9bn and AME spending was £325bn, of which social security and tax credits made up two-thirds. From 2007 to 2012, AME grew by £46bn, of which £30bn was due to welfare – within that, £17bn was due to working-age welfare and £13bn to pension upratings.In 2012, departmental spending on public services was £375.9bn and AME spending was £325bn, of which social security and tax credits made up two-thirds. From 2007 to 2012, AME grew by £46bn, of which £30bn was due to welfare – within that, £17bn was due to working-age welfare and £13bn to pension upratings.
The two budgets most responsible for the rise in working-age welfare bills between 2007 and 2011 were tax credits (£8bn) and housing benefit (£4bn). These two budgets are expected to be the focus of the cap, coalition sources said.The two budgets most responsible for the rise in working-age welfare bills between 2007 and 2011 were tax credits (£8bn) and housing benefit (£4bn). These two budgets are expected to be the focus of the cap, coalition sources said.
The Lib Dems have ruled out further specific welfare cuts in 2015-16 beyond those already announced. Senior figures such as the business secretary, Vince Cable, have continued to rail against the way in which so many departmental budgets are being heavily squeezed in 2015-16 due to protections given to international aid, defence, health and school budgets.The Lib Dems have ruled out further specific welfare cuts in 2015-16 beyond those already announced. Senior figures such as the business secretary, Vince Cable, have continued to rail against the way in which so many departmental budgets are being heavily squeezed in 2015-16 due to protections given to international aid, defence, health and school budgets.
Michael Gove's Department for Education has weakened his bargaining position by publishing commissioned research by Deloitte which concludes that "funding per pupil is not correlated with performance at key stage 4 in 2010-11".Michael Gove's Department for Education has weakened his bargaining position by publishing commissioned research by Deloitte which concludes that "funding per pupil is not correlated with performance at key stage 4 in 2010-11".
Home Office ministers also made their case to block further cuts less certain by admitting they have been unable to detect any systematic correlation between reductions in police numbers and crime rates. Police numbers have been falling, as have crime rates.Home Office ministers also made their case to block further cuts less certain by admitting they have been unable to detect any systematic correlation between reductions in police numbers and crime rates. Police numbers have been falling, as have crime rates.
On Sunday, Cable praised Duncan Smith for raising the issue of universal benefits for pensioners, but said: "My party's view is that we've got to address this in a more systematic way rather than just relying on individual conscience.On Sunday, Cable praised Duncan Smith for raising the issue of universal benefits for pensioners, but said: "My party's view is that we've got to address this in a more systematic way rather than just relying on individual conscience.
"The government should approach the issue of these fringe benefits properly, either by suggesting that they should be taxable or restricted to, say, older pensioners who are less fit."The government should approach the issue of these fringe benefits properly, either by suggesting that they should be taxable or restricted to, say, older pensioners who are less fit.
"I think Iain Duncan Smith is acknowledging that there is an issue here, that relatively affluent people of pensionable age have done relatively well in very difficult times, and it would be fair to acknowledge that. And some people give it back, some people will fund charities, others will do nothing. At least he's flagging an important question, and it's important that he's raised it.""I think Iain Duncan Smith is acknowledging that there is an issue here, that relatively affluent people of pensionable age have done relatively well in very difficult times, and it would be fair to acknowledge that. And some people give it back, some people will fund charities, others will do nothing. At least he's flagging an important question, and it's important that he's raised it."
Ken Clarke, the Tory minister without portfolio, said it was not feasible to hand the money back, before adding a different gloss to the government's spending and growth strategy. He said on Sky's Murnaghan programme: "We're cutting spending more slowly than almost any of the other western Europe sovereign debt-infected countries; we're cutting our public spending slower than President Hollande's government in France and he was elected on an anti-austerity programme, but he is cutting much more than we are."Ken Clarke, the Tory minister without portfolio, said it was not feasible to hand the money back, before adding a different gloss to the government's spending and growth strategy. He said on Sky's Murnaghan programme: "We're cutting spending more slowly than almost any of the other western Europe sovereign debt-infected countries; we're cutting our public spending slower than President Hollande's government in France and he was elected on an anti-austerity programme, but he is cutting much more than we are."
He said the economy was still bumping along the bottom, and it may take another three years to recover.He said the economy was still bumping along the bottom, and it may take another three years to recover.
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