New briefing from leading charities – AME cap

On 5 December, the Chancellor will announce further details on his proposals for an ‘Annually Managed Expenditure’ or welfare cap as part of his Autumn Statement.  We previously wrote blogs on our initial concerns and further analysis on what this cap would look like when it was first announced in the summer Spending Round.

Since then we’ve been busy learning more about the technical design of the cap and getting to grips with how these annual spending targets would work in practice.

Today, NCVO with other leading charities – including Action for Children, Age UK, Barnardos, Child Poverty Action Group, Crisis, Oxfam, SCVO and Shelter – have published a technical briefing which highlights our concerns about the proposed plans. As a group, we have been considering the potential impact of the cap on people’s lives, while recognising the government’s policy objective to bring a greater level of scrutiny to AME spending.

We’re now seeking a meeting with Ministers and officials to discuss these points further.

So what do we want to say?

While charities are in agreement that the most effective way to reduce demand for social security is to address the root causes of its rising in the first place, the briefing we’ve published today critically explores the design features of the government’s proposed cap and offers recommendations to improve the blueprint, should it remain committed to the plan.

We want to talk about which social security benefits will be covered in the cap. It sounds like most benefits will be included, with only state pensions and unemployment benefits (and other passported benefits) left out. We are concerned this could cause a problem during economic downturns. For example, someone whose work hours are reduced or whose wages don’t keep pace with their rent during a downturn could find themselves doubly disadvantaged if tax credits or housing benefits are cut at the same time.

We’ve also been hearing that the cap targets will be set in cash terms, for each of the following four years, at the next Budget announcement in March 2014. We understand these targets are unlikely to be adjusted to for any unforeseen changes in inflation (this is a real issue, given under-forecasting in recent years). Setting out numbers in stone is understandably attractive for a government that wants to tighten its grip on public spending in this area. However, charities are increasingly worried that the impact will be an erosion of social security in the long term and with it, the living standards of people who rely on this support. This includes disabled people, whose needs of course remain the same, but could find their benefits being worth less. It could also affect people who are in work, but rely on extra help to pay the rising costs of rent and living.

Ultimately, the real issue with an annual cap is that it doesn’t reduce the need for support. It seems likely that it will drive short term decisions about social security; whereas approaches such as improving employment programmes (including support for younger and older workers and those furthest from the labour market), building more affordable housing, and investing in early intervention and childcare, could be more effective in reducing demand for social security spending and improving people’s lives. A short-term cap won’t solve these long-term issues.