Osborne's welfare super-cap is a frightening prospect for families

The new limit on "Annually Managed Expenditure" could mean even less support for the unemployed and the working poor.

The Budget was nothing but underwhelming for low income families: cancelling the rise in fuel duty and a penny off the price of a pint of beer do little to offset the increase in living costs that low-income families have had to contend with in recent years. Gains from the much-vaunted rise in the personal allowance all but evaporate for low-income families, who simply see their benefits reduced as their earned income increases. And as many commentators pointed out earlier this week, the winners from the new childcare scheme will be those some way up the income scale.

But perhaps the biggest worry for low income families is not the lack of policies that would help them today, but the threat of what might hurt them still further tomorrow. Tucked away in the Budget statement, the Chancellor made some seemingly technical comments about reforming the spending framework, and the need to put a limit on demand-led Annually Managed Expenditure (AME) in the future.

Critically, a large part of AME is spending on social security, which is supposed to protect us all in times of need. But putting a nominal limit on AME would mean that as these needs increase – in times of rising unemployment, for example, or as a result of growing housing costs – there would be no commensurate rise in social security provision. Consequently, benefits would either need to be spread more thinly, or restricted in some other way.

The Chancellor presented the idea of a limit on AME as necessary to rein in a run-away social security budget. However, as usual, the figures he provided show only part of the picture. While the Budget document speaks of "welfare spending rising in real terms by 20% in the decade before the financial crisis", it fails to mention that social security spending as a percentage of GDP was broadly static during this period.

The only glimmer of hope, perhaps, was the Chancellor's rather cryptic comment that he would establish a limit for AME "that allows the automatic stabilisers to operate". As the International Monetary Fund recently pointed out, social security payments form a critical part of these stabilisers. Clarification from the Chancellor as to how he will square this fact with a limit on AME is clearly necessary.

Of course, the idea of disconnecting state support from assessed need is not a new one for this government: the overall cap on benefits, which will be rolled out from April this year is a perfect example of this model. But the idea of a 'super-cap' on total social security in the future is a genuinely frightening prospect for families already struggling to get by with diminished support from state. 

The balcony of a residential development in the London borough of Tower Hamlets. Photograph: Getty Images.

Lindsay Judge is senior policy and research officer for the Child Poverty Action Group.

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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