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.

Photo: Getty
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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

What’s the Copeland by-election about? That’s the question that will decide who wins it.

The Conservatives want it to be about the nuclear industry, which is the seat’s biggest employer, and Jeremy Corbyn’s long history of opposition to nuclear power.

Labour want it to be about the difficulties of the NHS in Cumbria in general and the future of West Cumberland Hospital in particular.

Who’s winning? Neither party is confident of victory but both sides think it will be close. That Theresa May has visited is a sign of the confidence in Conservative headquarters that, win or lose, Labour will not increase its majority from the six-point lead it held over the Conservatives in May 2015. (It’s always more instructive to talk about vote share rather than raw numbers, in by-elections in particular.)

But her visit may have been counterproductive. Yes, she is the most popular politician in Britain according to all the polls, but in visiting she has added fuel to the fire of Labour’s message that the Conservatives are keeping an anxious eye on the outcome.

Labour strategists feared that “the oxygen” would come out of the campaign if May used her visit to offer a guarantee about West Cumberland Hospital. Instead, she refused to answer, merely hyping up the issue further.

The party is nervous that opposition to Corbyn is going to supress turnout among their voters, but on the Conservative side, there is considerable irritation that May’s visit has made their task harder, too.

Voters know the difference between a by-election and a general election and my hunch is that people will get they can have a free hit on the health question without risking the future of the nuclear factory. That Corbyn has U-Turned on nuclear power only helps.

I said last week that if I knew what the local paper would look like between now and then I would be able to call the outcome. Today the West Cumbria News & Star leads with Downing Street’s refusal to answer questions about West Cumberland Hospital. All the signs favour Labour. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.