A new cap on total welfare spending will be set next year and take effect in 2015.
The Chancellor set out plans for a radical new limit, to be set every five years, that will include housing benefit, tax credits, disability benefits and pensioner benefits, although the state pension will be excluded.
Governments will have to comply with any breach of the cap by cutting welfare in what George Osborne says will be a ‘limit on the nation’s credit card’.
Ministers say the cap is designed to prevent repeats of the spike in incapacity benefit claims under the Conservative governments of the 1980s and 1990s and the surge in housing benefit under Labour. It is also designed to try to bind Labour’s hands by building structural limits into welfare – a huge proportion of Government spending.
Governments will have to comply with any breach of the cap
by cutting welfare in what George Osborne says will be a 'limit on the nation's
credit card'
Labour has indicated that it is prepared to consider backing the idea of a cap, though shadow chancellor Ed Balls has controversially suggested pensions might be included too.
Mr Osborne told MPs that benefits which fluctuate with the economy, such as jobseeker’s allowance, would be excluded from the cap, as well as the state pension.
But he insisted: ‘All other benefits, from tax credits to income support, to the vast majority of housing benefit, will be included in the cap.’
The Tories argue that including state pensions in the cap would not be fair, since it could mean cutting pensions for those who have worked all their lives because costs on housing benefit were getting out of control.
Mr Osborne said the limit on total welfare expenditure would be set by the Chancellor at the beginning of each Parliament, and MPs would be asked to support it.
If the limit was breached, the Chancellor would have to explain why, and a vote would be held in Parliament. In 2014, the Government is expected to spend £112bn on welfare payments, excluding state pensions.
Charlotte Ravenscroft, of the National Council for Voluntary Organisations, warned: ‘Many charities fear the new welfare cap will drive the government to make spending decisions that will lead to vulnerable people bearing the brunt of further cuts.’
Lord Razzall, a Lib Dem trade and industry spokesman, added: ‘The devil will be in the detail
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