The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
The Government have made significant progress in putting the welfare state on a sustainable footing—undertaking major reforms to benefits and pensions, in order to restore fairness and restore public finances at the same time.
As part of this decisive action, at Budget 2014, the Government took the unprecedented step of introducing a cap on welfare. Today, the independent Office for Budget Responsibility (OBR) has confirmed that the Government are on track to meet the welfare cap commitment.
What is more, the OBR now forecasts welfare spending outside the cap to be £2.3 billion a year lower on average over the next four years, compared to Budget 2014—contributing to a reduction in the overall welfare spending forecast in each and every year of the cap forecast.
This is a marked improvement in exercising discipline over welfare spending. Spending in scope of the welfare cap accounts for £1 in every £6 spent by the Government. Yet in spite of this, it had never previously been subject to firm controls and was allowed to increase by £48 billion under the last Government, up from £70 billion to £118 billion. This was within an overall welfare bill that increased by 60% in real terms, rising even before the recession.
This Government’s welfare reforms are set to save nearly £50 billion over this Parliament. But for these vital changes, welfare spending was set to be that much higher still.
Instead, by actively managing welfare spending, we have halted the damaging trend of welfare spending escalating out of control. Overall welfare spending has been falling as a proportion of GDP since 2012, and last year fell in real terms for the first time in 16 years —even while spending on pensioners rose. This year, working age welfare spending is forecast to be £3 billion lower in real terms than in 2009-10. Testament to the success of the Government’s long-term economic plan, there have been significant falls in spending on unemployment, down over £2 billion since the recession; and on out-of-work benefits, back to pre-recession levels by 2015-16.
Today, the OBR’s first assessment of the welfare cap shows that the Government are forecast to meet the welfare cap commitment, in each of the four years of the forecast period from 2015-16 to 2018-19. The Government are living within the rules of the cap and there has been no breach.
The detail of that assessment is set out in full in the OBR’s “Economic and Fiscal Outlook December 2014”. This explains that the use of the margin in 2015-16 and 2016-17 is due to forecast reasons, not policy changes— the margin exists to allow for such fluctuations in the forecast. As the OBR has set out in the economic and fiscal outlook, its forecast for the volume of work capability assessments for employment and support allowance has been adjusted downward, and the forecast of the number of people who are likely to receive PIP has been adjusted upward. These, alongside other changes to the incapacity and disability benefit forecasts, have increased the forecast and result in use of the margin in 2015-16 and 2016-17, then falling below the margin in 2017-18 and 2018-19. However, overall, compared to its forecasts at Budget 2014, the OBR has revised welfare spending down by £1.3 billion a year on average up to 2018-19.
Importantly, these reforms are set to save money and deliver efficiencies in the long term. That much is shown by excess spending continually falling over the four-year period, bringing spending below the level of the welfare cap in 2017-18 and 2018-19.
Above all, this reflects the full effect of the Government’s action to bring spending back under control, arresting the growth that was once left to escalate. In future years, the aim must be to continue to exercise discipline and rigour in managing welfare spending—as this Government have committed to do.