Swapping hats: the Welfare Cap, cash benefits and services

A measure designed with the sole aim of creating a ‘dividing line’ between the Conservative-led Government and the Opposition has been met with disarming equanimity and consensus from across the front benches.

Sold as a means of containing the costs of welfare (and to make work pay), it is nothing but a rhetorical device and a political ruse. To all intents and purposes, it does not restrict the level of government expenditure on welfare recipients. But, this doesn’t mean it doesn’t come with dangers. The cap ties the hands of future governments not as to whether they help certain groups but as to how they help them.

If a future government finds that welfare spending is pushing above the cap, it could simply cut the cash benefit and substitute it with a service. The outcome of such policy shifts will not be fiscal savings but governments being forced to make judgements on how to spend money on behalf of citizens. Alternatively, it will encourage the government to develop clever ruses to shuffle expenditure from within the Welfare Cap to the uncapped welfare expenditure.

Here are six ways in which a future government might try to keep in check any spending on benefits within the Welfare Cap. You can judge for yourself whether these are all outside the bounds of credulity.

  1. Reduce expenditure on Child Benefit – perhaps by means testing it for some parents – and give the same parents a tax free entitlement to free school meals. They wouldn’t dare.
  2. Drop the tax free childcare entitlement and put the money directly through nurseries or Sure Start centres. Look out for the explanation that ‘supply-side’ funding is more efficient than ‘demand-side’ funding.
  3. Reduce the level of tax credits awarded to disadvantaged families and instead divert an additional sum to schools, nurseries, toddler groups, playgroups or any other institution that the state happens to think that the child should frequent. Maybe this enhancement could be called a ‘Premium’ or similar.
  4. Axe the Winter Fuel Payment and provide an additional free home insulation package to pensioners funded by a levy on everyone’s energy bill or by general taxation.
  5. Gain some headroom for a splurge on other handouts by reducing over time the expenditure on a benefit that falls within the Cap (say Pensioner Credit), with the cost borne by a benefit outside the cap (say State Pension).Sorry, forgot, this is happening already (with the triple lock on the state pension gradually cutting the proportion of pensioners that need pensions credit from 40% to 10% by 2050).
  6. Increase the national minimum wage dramatically to cut the burden on the tax credit bill, and let Jobseekers Allowance and the housing benefit bill (the automatic stabilisers outside the Cap) pick up the tab for rising unemployment.  That’s what they’re for after all, isn’t it?


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