The new welfare cap: further analysis

What the Chancellor said:

As part of yesterday’s Spending Review, the Chancellor announced a new cap on welfare spending.

He argued that the welfare system must be fair to those who need it, but also those who ‘go out to work, who pay their taxes’. (A false distinction – as others like NHF have highlighted).

‘We’ve already capped the benefits of individuals – now we cap the system as a whole.’

“The new Welfare Cap is proof that Britain is serious about living within its means…Today, we’re introducing a limit on the nation’s Credit Card.”

Under the spotlight:

According to Treasury officials, this means that each year there will be a fixed annual target for welfare spending. At each Budget, the Chancellor will announce welfare spending targets for the four years ahead (not including the current year). It will be expressed in cash terms.

The first announcements will be made in next year’s Budget – and will be based on the OBR’s latest forecasts.

If, by the subsequent Budget, there have been changes to economic circumstances or other reasons why they are unlikely to meet the targets that have been set, Ministers will have to write to the OBR and explain why.

Within the cap will be disability, housing benefit, tax credits and pensioner benefits. Outside the cap, state pensions and unemployment benefits (including benefits that are ‘passported’).

I asked the Treasury about how the new cap will interact with existing welfare policies – such as the Universal Credit, which has been carefully formulated to try and ensure that work always pays. Or disability benefits, where people would find it difficult to cope if their benefit levels were to change annually, despite their needs remaining the same.

Officials explained that it will not be an ‘automatic mechanism’ that kicks in to alter these technical formulas. Rather, it will be a high level target that guides Ministers in their policy decisions, ‘shining a light’ on welfare spending decisions.

The welfare cap is only one element of the welfare announcements yesterday, that included other measures such as expecting people to search for work for seven days before they can begin claiming benefits. Some charities have responded with concern about these other announcements, suggesting that it amounts to a ‘foodbank first’ policy that will increase demands on charities that are underfunded.

Will it work?

Britain is a wealthy but indebted nation. The Chancellor’s analogy of putting a limit on the national credit card has popular appeal, but isn’t really the right image.

Where some people are struggling to feed their children, to find work, to find work that pays well enough, to afford their rent, or to get by without the social care they need – cutting these people’s benefits will not inherently solve their problems. It will not reduce the overall level of demand for benefits.

Many charities are calling for a greater focus on prevention and better social policy and programmes – not just because it will improve outcomes, but because it is the only sustainable way to reduce welfare spending. Today’s Work Programme statistics will show, for example, whether it is getting people back to work as intended. Yesterday’s announcement of more integrated health and social care commissioning is a good first step, but also needs to go further.

With the new welfare cap due to be launched in next year’s budget, there is limited time for Treasury to get this all right. It will be essential that they engage with organisations who have experience at the frontline.

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Charlotte Ravenscroft was NCVO’s head of policy and public services. Charlotte’s wrote about funding, public service delivery, and strengthening the evidence base for voluntary action. She has also worked at The National Lottery Community Fund and the Department for Education.

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