Osborne's new spending cap points to more welfare cuts

The Chancellor's plan to limit "Annually Managed Expenditure" shows how a Tory government would seek to further curb benefit spending.

George Osborne has already capped benefits for out-of-work families at £26,000 a year, now he's proposing to go further and introduce a cap on total welfare spending. One of the most significant announcements in the Budget was that the Chancellor is planning "a new limit" on what's called "Annually Managed Expenditure" (AME). This is the area of spending concerned with non-departmental items such as welfare payments, debt interest and EU budget contributions (which account for around 50 per cent of all state spending). It is the automatic rise in the first two, in particular, that has made it so hard for the government to stick to its deficit reduction targets. Osborne is now proposing to end this fiscal irresponsibility (as he sees it) by introducing a limit on "a significant proportion" of this expenditure. 

In practice, this will almost certainly mean even greater welfare cuts. Although Osborne said that the new cap would be set out in a way "that allows the automatic stabilisers to operate", he added that it would "bring real control to areas of public spending that had been out of control." And since the government has less influence over debt interest payments (the markets decide those) and EU budget contributions (the EU 27 decide those) than it does over welfare spending, it is benefits that will bear the brunt of the squeeze.

The Treasury is briefing that the new cap will not affect the government's plan to avoid further welfare cuts in this summer's 2015-16 Spending Review (a victory for the Lib Dems) but it is a signal that a future Conservative government (or a future Tory-led coalition) would seek to further curb welfare spending. What form could this take? Osborne is likely to extend the 1 per cent cap on working-age benefit increases beyond 2015-16 and to look again at measures such as the abolition of housing benefit for the under-25s and the restriction of child benefit for families with more than two children.

Other policies trailed by David Cameron in his welfare speech last summer included:

- Preventing teenagers from claiming benefits as soon as they leave school.

- Paying benefits in kind (like free school meals), rather than in cash.

- Reducing benefit levels for the long-term unemployed.

- A lower housing benefit cap. Cameron said that the current limit of £20,000 was still too high. 

I expect some or all of these are under consideration for the next Conservative manifesto. 

A young boy plays football in a run down street with boarded up houses in the Govan area of Glasgow, Scotland. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.