Reforms may cut benefits by quarter

p21260UK-News-6-1

Published: Wednesday 28th January 2015 by The News Editor

Comments (0)

Benefits for working-age people could be cut by almost a quarter if reforms initiated by the coalition Government are carried through over the next five years, an independent economic think-tank has said.

Despite numerous reforms announced since 2010, analysis by the Institute for Fiscal Studies (IFS) found that the total social security bill for benefits and pensions has remained “virtually unchanged” after inflation is taken into account, reaching £220 billion in 2015/16.

Reductions totalling £7 billion in benefits for working age adults and children have been offset by £7 billion in increased spending on pensioners, the IFS found.

While acknowledging that the coalition’s reforms had prevented what would otherwise have been a £16.7 billion (7%) increase in social security spending over the course of the Parliament, the think-tank said that the biggest changes to the benefit system were “yet to come”.

Forecasts suggest the roll-out of Iain Duncan Smith’s flagship Universal Credit for jobless claimants may still be incomplete by 2020 – 10 years after it was first announced – said the IFS in a report.

In order to meet George Osborne’s plans for overall public spending without accelerating cuts in other public spending , the IFS calculated that the government which emerges from the May 7 general election would have to reduce social security spending by a further £21 billion by 2019/20.

If pensioners are largely protected – as Prime Minister David Cameron has hinted they may be under a Tory government – the cuts would equate to around 23% of benefits for working-age people, the IFS found.

And the think-tank warned that if future governments keep Mr Cameron’s “triple lock” – under which the basic state pension rises in line with the highest of inflation, earnings or 2.5% – it will result in support for the elderly growing faster than earnings and prices in the long term, at a cost of many billions of pounds a year. The basic state pension will already be costing £1.1 billion more by 2015/16 than if it was linked to inflation and £4.6 billion more than if it was linked to earnings, it found.

The report said: ” The coalition Government has implemented changes to the benefit system that mean spending in 2015/16 will be £16.7 billion lower than it would otherwise have been. Despite this, the forecast £220 billion of benefit spending in 2015/16 is virtually unchanged in real terms since 2010/11, although it has fallen somewhat as a percentage of national income, from 12.4% to 11.6%.

“This reflects the fact that underlying economic and demographic factors are pushing up benefit spending.

“Growing pensioner numbers and higher entitlements among new pensioners have pushed up real-terms spending on the state pension by £12 billion between 2010/ 11 and 2015/16. This has been partially offset by falls in spending on other benefits for pensioners, leaving overall spending on benefits for pensioners £7 billion higher. In contrast, spending on benefits for working-age adults and for children has fallen by around £7 billion.”

The report said that, taken together, the reforms have “changed the shape of the benefits system”, with support more closely targeted on those with the lowest incomes and a move away from means-testing for pensioners.

There was evidence that the introduction of tougher sanctions has had “some success” in encouraging claimants to return to work, particularly in the case of single parents. But the payment-by-results Work Programme has “not yet delivered the forecast increases in employment entry”, said the IFS.

Shadow work and pensions secretary Rachel Reeves said: “For all David Cameron’s claims to cut welfare, this new research reveals that benefit spending will be no lower next year than it was when David Cameron took office -despite measures such as the cruel and unfair Bedroom Tax.

“The IFS confirms that you can’t control welfare spending without tackling its root causes in low pay and rising rents.

“Only Labour has a plan to tackle the cost-of-living crisis and low pay as part of our tough but balanced plan to get the deficit down, control welfare spending and earn our way to higher living standards for all, not just a few at the top.”

Published: Wednesday 28th January 2015 by The News Editor

Comments (0)

Local business search