How would a further £12bn of welfare cuts be achieved? Osborne under pressure to set out his plans

25th March 2015

George Osborne has come under pressure to lay out the details of who will lose out following his announcement that a further £12bn will be cut from welfare spending by 2017/18. Paul Johnson, Director of the Institute for Fiscal Studies has expressed frustration that “radical changes” are planned but have not been set out before the general election. With pensioner benefits ringfenced from the cuts, a substantial burden is set to fall on other benefit recipients.

The BBC reports Paul Johnson’s comments: “He’s announced about £2bn [of cuts] and we know nothing about where the further £10bn are coming from.”

“He will have to implement some significant cuts in some significant benefits.”

BBC economics editor Robert Peston has blogged: “It won’t remotely be easy to find that sum in the next few years. As the IFS points out, he has already made some of the simpler savings.”

The Guardian has also published a piece looking at where the cuts could fall given the ringfence on pensioner benefits. They quote Conservative Treasury Secretary David Gauke who revealed on the BBC’s Daily Politics that his party would not be setting out details of the cuts until after the election: “We will set it out nearer the time which will be after the election.”

Alongside this the Guardian published the following graphic illustrating the size of proposed savings.


 


The size of the savings in this parliament so far

The proposed £12bn of cuts comes on top of savings already acheived. According to government analysis, welfare spending has increased at the slowest rate since 1948 at 0.5% per year over this parliament. This overall increase is despite cuts to benefit entitlements through a package of welfare reforms. Much of the increase in spending has been driven by housing benefit (increased rents) and higher than expected spending on Employment & Support Allowance.

There has, however, been some debate about how much the government’s welfare reforms have saved in total over the course of this parliament compared to what would otherwise have been spent. Osborne claims a figure of £21bn while the independent IFS quotes a figure of £17bn. Whatever this figure, Inclusion analysis has shown that the majority of these savings come from cuts to Tax Credits and 1% uprating of benefits, falling largely on in-work claimants. Other savings have been realised through changes including local housing allowance reforms, the benefit cap and social sector size criteria; which generally have bigger individual impacts on fewer households.

The size of the savings in this parliament has also been discussed by Robert Peston in his blog with a response from Jonathan Portes who argues that the government has failed to make the savings it planned. Portes points to figures (see table below) which show the Autumn Statement 2010 set out a forecast spend in 2014/15 of £203.2bn, that is £13.6bn less than forecast at pre-budget 2010. By the Autumn Statement of 2014 this figure has been revised up to £215.0bn, or £1.8bn less than forecast in pre-budget 2010.