POLITICS

Budget 2014: George Osborne's £119bn Welfare Cap 'Smoke And Mirrors', Warn Experts

19/03/2014 13:30 GMT | Updated 19/03/2014 17:59 GMT

George Osborne's decision to cap spending on benefits in the next parliament at £119 billion has been dismissed as "smoke and mirrors", by a leading economist.

Jonathan Portes, head of the National Institute for Economics and Social Research (NIESR) and a former Cabinet Office chief economist, told the Huffington Post UK that the Chancellor's Budget announcement on Wednesday failed to specify how it would be achieved.

"Simply announcing an overall spending cap for a period that is after the next election, without announcing any cuts to specific benefits is smoke and mirrors," he said. "The real test comes when government, this or the next one, announces actual policy changes to deliver the cap."

A post-2015 chancellor will have little wriggle room. The proposed welfare cap won't include the state pension, which takes up the biggest single chunk of the social security budget. It will be set at £119 billion in 2015-16, rising to £127 billion in 2018-19 due to inflation, Osborne said.

Osborne has also suggested that jobseekers' allowance will not be included in the welfare cap, either. The Opposition has suggested it would be willing to sign up to the principle of a welfare cap - but, unlike the coalition, Labour's suggested that the state pension could be included. Critics, meanwhile, such as ex-Social Market Foundation director Ian Mulheirn, have branded the cap as "entirely rhetorical" and a "political device".

Social security expert Declan Gaffney suggested that this could mean "lots" of pensioner benefits like winter fuel allowance could be included in the cap. "If that's the case, the government's line that Labour's cap isn't protecting pensioners is much weaker," he told HuffPost UK.

Dr Faiza Shaheen of the New Economics Foundation said: “The £119m structural welfare cap has nothing to do with the strength of our economy. It’s a purely political move, designed to cement the Tory’s vision of a slimmer, trimmer state into place and constrict the welfare debate further.

"But if we’re serious about economic resilience we need to be talking about living wages, creating good jobs and investing in rather than cutting our social infrastructure.”

Housing benefit, tax credits and various disability benefits will be included in the cap - which means working, and not just workless, households could be hit hard come 2015.

George Osborne and his big red box

Osborne insisted the coalition will keep "putting Britain right" as he delivered his fifth Budget in the Commons - for "the makers, the doers, the savers".

The chancellor said the government had "held its nerve" and was able to deliver a boost to pensions and savers because the economy was performing better than expected.

The Office for Budget Responsibility (OBR) now predicts the UK economy will grow by 2.7% - up from its previous estimate of 2.4%.

"I can report today that the economy is continuing to recover - and recovering faster than forecast," Osborne told MPs.

"We set out our plan. And together with the British people, we held our nerve. We're putting Britain right.

"But the job is far from done. Our country still borrows too much. We still don't invest enough, export enough or save enough.

"So today we do more to put that right. This is a Budget for building a resilient economy. If you're a maker, a doer or a saver: this Budget is for you.

"It is all part of a long-term economic plan - a plan that is delivering security for the people of this country."

Osborne said this financial package would ensure that "hardworking people keep more of what they earn - and more of what they save".

"Yesterday we set out our support for parents with tax-free childcare," he said.

"Today support for savers is at the centre of this Budget, as we take another step towards our central mission: economic security for the people of Britain."

He said the OBR was forecasting that the economy would surpass its pre-crisis peak later this year. The OBR was forecasting the deficit would be lower than expected this year at 6.6% - and predicted the government will post a surplus of 0.2% in 2018/19.

"There were those who said repeatedly that the deficit was going to go up.

"Instead I can tell the House that the Office for Budget Responsibility have revised down the underlying deficit in every year of their forecast," Osborne said.