SMF Briefing: Making the Cap fit – the Implications of an AME spending limit

A little-noticed announcement on public spending at last month's Budget looks set to pitch pensioners and working-age people against each other in the future over their share of the controversial welfare bill, new analysis from the Social Market Foundation reveals today.

At the Budget the Chancellor announced his intention to set a limit on a significant proportion of public spending in order to tackle the ‘growth of spending on welfare benefits’ in the years ahead. This paper explores the implications of such a cap for pensions and working age welfare.

This briefing note demonstrates that working age welfare has been the biggest element of the rise in ‘Annually Managed Expenditure’ (AME) in recent years, but that this was primarily the effect of the recession and subsequent economic stagnation. While spending on working age welfare is set to fall in the years ahead, as economic growth returns, pensioner benefits are set to grow rapidly. Any meaningful benefit cap will therefore involve cuts to pensioner benefits or further reductions in working age benefits that will prevents them responding to economic conditions.

Download The Report: PDF

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