Coffee House

Wriggle room welfare – 6 AME ‘cap’ observations

27 June 2013

The savings-hungry government has set its sights on welfare-related Annually Managed Expenditure (AME). At £183bn a year – it’s over half of all government AME spending. The state pension is the largest piece of the pie, accounting for around £80bn. Tax credits cost £25bn and housing benefit £22bn. A radical AME cap has the potential to reduce welfare spending – a point Labour accepts and supports. Following yesterday’s announcement, several observations can be made.

1). It’s a target, not a cap.  The language is tough but a firm ceiling on this type of demand-led spending is probably unworkable. A target approach would see a spending limit set at the Budget. The OBR would monitor spending and issue a warning before any projected breach of the limit. But, in the event of a breach, there’s wriggle room for the government. It could find savings from elsewhere or justify overspend to parliament. That’s not the firm credit card limit suggested by the word ‘cap’.

2). Because of this flexibility, a breach could become routine economic business.  Missed targets, revised figures and moving goalposts are the norm these days. The stigma is gone.


3). Its feasibility will rely on precise financial forecasts to establish the level of the ‘cap’. Yet ministers will need no reminding that projections are unreliable and problems like low pay and rental inflation, which drive AME, are hard to tackle.

4). Pensioners are out but the disabled are in: a potential dividing line between the Coalition and Labour. Labour originally suggested it would include the state pension in its cap.  But yesterday Ed Balls pledged to retain the (unaffordable) triple lock guarantee to increase the state pension by at least 2.5 per cent every year. Including disability benefits is bold; campaigners oppose it.

5). It is highly political. We can assume the first of the AME caps will be announced in 2014, probably set quite low, forcing Labour to endorse it or call for higher welfare spending. It will then come into force in April 2015, just in time for polling day.

6). It could weaken Universal Credit (UC), the government’s flagship welfare policy. Benefits wrapped into UC, such as housing benefit and tax credits, will be subject to the limit. The key principle of UC is to ‘make work pay’ by allowing people to keep more of what they earn, but this becomes harder if rates of support are reduced because the working age welfare pot shrinks. And it could isolate the DWP. The failure of other departments who have a stake in welfare-related AME spend would hit the DWP very hard. This already happens to some extent, such as the failure to deal with soaring rents that increases housing benefit or a lack of skills trapping people in low income and tax credits. But with political pressure and a public ‘cap’ set, ministers at the DWP may find themselves nestled even further into the lap of the Gods.

It’s bold, political and pleasing on the tabloid eye. But, with much detail about the ‘cap’ still unclear, the welfare debate is about to enter yet another phase.

Christian Guy is Director of the Centre for Social Justice

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  • Iain Hill

    Wealthy pensioners are public enemy no 1, gobbling up resources with great skill, cunning and energy – wait a moment, aren’t these by and large the same people who have contributed (sic) higher rate tax and NI for the best part of their working lives, as part of the process of becoming “wealthy”? Others have the audacity still to work and pay tax. Still others (and this is me!) retire and 17 years later, are still paying higher rate tax.

    The whole nation must unite against wicked contributors like these, and remove the £100 bus pass (what buses?) and the £100 fuel allowance, the shame of our nation. Unfortunately we cannot touch their fully paid-up pensions, but we will find something, perhaps a zero rate of interest on their savings? (oh no, we already have that!).

    Shame, shame, shame on you all! Exploitation of the gullible public and MPs in an effort to divert attention from the governments own inability to tax properly those with over £150K.

  • Jane Young

    So the Government is deciding in advance how many disabled people the country can afford? Yet another reason we should fear proposals for assisted dying!

    The message coming through loud and clear, almost every time the issue of Government expenditure is raised, is that there are many aspects of spending considered more worthy of being preserved than ensuring disabled people are properly supported. And before someone chips in to talk about how we should all be working, let’s remember that not all benefits – by a long shot – are income replacement benefits. Most disabled people need some kind of support whether they work or not. So this isn’t about the “work-shy” but about whether, as a society, we believe in fairness and compassion.

    Those readers who think Osborne is right should stop to consider what they would need if, through no fault of their own, they had a serious accident or developed a progressive disease. They should also bear in mind that insurance companies are prone to find any possible excuse to avoid paying out…

  • Abhay

    It should be a cap, a much tighter one rather than trimming at the margins, and it should be legally binding.

    • Iain Hill

      Another resounding statement, trumpeted out to make the author feel better for at least part of a day. How? How? How?

      Public sector managers in the UK have been at this with cash limits for at least 25 years. The stark trut is that everyone wants the cutback in general, but will not accept the actual cuts which result. Let us all grow up.

      • Abhay

        I don’t understand what you are on about Iain, I can be quite specific.

        1. I wish to see welfare state rolled back and tax relief given to tax payers. Reduce income tax rates, cut back NI and yes, reduce VAT significantly.

        2. I am supportive of state welfare for the real needy (disabled, long term illness etc.) but absolutely against funding lifestyle – no TV, no play-station, no rap music, no I-pad / I-pod, no holidays, no Rihanna concerts, no cars, no eating out, no cigarettes, no alcohol on welfare support.

        3. Quangos / awareness raising bodies – by and large no assumption in favour of state funding to start with but prove your merit and then let’s talk.

        4. Withdraw state welfare from traitors under well defined treason laws

        let me know if you object to any of the above and we can take it from there.

  • HookesLaw

    So lets NOT have a cap on welfare then.
    This is a miserable article. The govt have announced a welfare cap and that is immeasurably better than not having one.

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