George Osborne delivers his speech at the Conservative conference in Birmingham last month. Photograph: Getty Images.
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The OBR shows why welfare cuts won't control spending

Inadequate wages and extortionate rents are pushing up the housing benefit bill. 

George Osborne prides himself on his commitment to bear down on welfare spending, but today's report from the OBR (handily commissioned by the Chancellor) shows how he's struggling. It warns that the new cap imposed on expenditure is in danger of being breached due to the botched implementation of disability benefit reforms and the surging housing benefit bill. 

Between March 2011 and March 2014, forecast spending on incapacity benefits for 2015–16 has been revised up by £3.5bn (34 per cent) due to a higher than expected caseload, slower than expected transfer from incapacity benefit to the new employment and support allowance, and a lower than expected number being found "fit for work" (and therefore ineligible for full support). 

In addition, forecast spending on housing benefit (or, as you might call it, landlord subsidy) has been revised up by £2.5bn (11 per cent) since the expected number of renters and the level of rents relative to earnings have increased at a faster rate than predicted. As wages have continued to lag behind inflation, the number forced to rely on welfare to remain in their homes has surged. The government is now forecast to spend more than £27bn on housing benefit by 2018-19, accounting for more than 11 per cent of welfare expenditure. 

As the OBR notes, one of the main causes of higher spending has been the shift from public to private rented housing. In 2012-13, the number of private renters exceeded the nunber of social renters for the first time in nearly 50 years. Since private rents are usually higher than social rents, the housing benefit bill has risen accordingly. The OBR also notes that "rents have risen faster than earnings and inflation over the past decade." 

What all of this shows is the limits of an approach that focuses on salami slicing the welfare budget (through measures such as the benefit cap and the "bedroom tax"), rather than addressing the structural drivers of higher spending. Unless problems such as inadequate wages and extortionate rents are tackled (through a significantly higher minimum wage, greater use of the living wage, more affordable housing and limits on rent increases, as proposed by Labour) then it will become ever harder to control expenditure. 

George Eaton is political editor of the New Statesman.

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The public sector pay freeze isn't the only Downing Street policy in danger

The government has reached the end of the road as far as politically-deliverable cuts go.

It's Schrödinger's pay freeze: is it dead or not? We won't know until Philip Hammond opens the box! Yesterday, two Cabinet ministers – Chris Grayling and Michael Fallon – suggested that it was dead. Then Downing Street said it remained in place.

But as I wrote yesterday, the pay freeze is one of four things that Conservative backbenchers think must change before the next election. (The second and third are the cuts to schools and the pressure on the health service respectively, and the fourth is their leader.) Two senior backbenchers, Stephen Crabb and Nicky Morgan, have publicly called for an easing of the pay cap, particularly for nurses.

The difficult truth is that whatever Nos 10 or 11 may say or think, there aren't the votes in the House for a budget that doesn't include some action on the pay freeze. (The government can do it and keep to Philip Hammond's revised deficit projections, as he has an extra £30bn of headroom, and a pay increase at inflation would cost around £4bn.)

It's worth pausing, forgetting May's woes for a moment and looking out at the government's long-running difficulties at passing its fiscal policies. The proposed change in business rates? Mothballed. Philip Hammond's modest change in national insurance? Abandoned and very probably a key factor in Theresa May's disastrous decision to hold an early election. George Osborne's tax credit cuts? Killed in the Lords, taking with them his leadership hopes and quite possibly Britain's EU membership. School funding changes? A question of when, not if, those are abandoned.

In a way, May's difficulties only highlight what was already true: that the government has reached the end of the road as far as politically-deliverable cuts go.  

And with Britain closer to the next recession than the last, the levers are still firmly where Gordon Brown and Alistair Darling left them after they dealt with the last crisis: interest rates are still at record lows, the government still heavily indebted. 

And that's a far bigger worry, for the Conservatives and for everyone, than how long May endures at Downing Street.

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

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