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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Tom Watson rouses Labour's conference as he comes out fighting

The party's deputy leader exhilarated delegates with his paean to the Blair and Brown years. 

Tom Watson is down but not out. After Jeremy Corbyn's second landslide victory, and weeks of threats against his position, Labour's deputy leader could have played it safe. Instead, he came out fighting. 

With Corbyn seated directly behind him, he declared: "I don't know why we've been focusing on what was wrong with the Blair and Brown governments for the last six years. But trashing our record is not the way to enhance our brand. We won't win elections like that! And we need to win elections!" As Watson won a standing ovation from the hall and the platform, the Labour leader remained motionless. When a heckler interjected, Watson riposted: "Jeremy, I don't think she got the unity memo." Labour delegates, many of whom hail from the pre-Corbyn era, lapped it up.

Though he warned against another challenge to the leader ("we can't afford to keep doing this"), he offered a starkly different account of the party's past and its future. He reaffirmed Labour's commitment to Nato ("a socialist construct"), with Corbyn left isolated as the platform applauded. The only reference to the leader came when Watson recalled his recent PMQs victory over grammar schools. There were dissenting voices (Watson was heckled as he praised Sadiq Khan for winning an election: "Just like Jeremy Corbyn!"). But one would never have guessed that this was the party which had just re-elected Corbyn. 

There was much more to Watson's speech than this: a fine comic riff on "Saturday's result" (Ed Balls on Strictly), a spirited attack on Theresa May's "ducking and diving; humming and hahing" and a cerebral account of the automation revolution. But it was his paean to Labour history that roused the conference as no other speaker has. 

The party's deputy channelled the spirit of both Hugh Gaitskell ("fight, and fight, and fight again to save the party we love") and his mentor Gordon Brown (emulating his trademark rollcall of New Labour achivements). With his voice cracking, Watson recalled when "from the sunny uplands of increasing prosperity social democratic government started to feel normal to the people of Britain". For Labour, a party that has never been further from power in recent decades, that truly was another age. But for a brief moment, Watson's tubthumper allowed Corbyn's vanquished opponents to relive it. 

George Eaton is political editor of the New Statesman.