UK Politics

Welfare reform savings 'less than expected', says IFS

General view of a Job Centre Image copyright PA

Welfare spending over the course of this Parliament has fallen by just £2.5bn despite reforms aimed at saving £19bn, economic forecasters say.

The Institute for Fiscal Studies (IFS) said the reasons included a rise in the cost of pensioner benefits, and an increase in housing benefit spend.

It said Chancellor George Osborne could need to make more spending cuts "just to stay on track".

The Treasury said its plan was "securing a resilient economy".

The IFS said changes to benefits and tax credits had been expected to save £19bn compared with "a world of no policy change".

Explaining why spending had in fact reduced by £2.5bn in real terms, it said:

  • All of the £5bn rise in the cost of pensioner benefits could be explained by the rising cost of state pensions. It said this was partly down to the ageing population, but also the "more generous" entitlements of a new generation of pensioners who had recently retired
  • There had been an "unanticipated" rise in housing benefit spending of £1bn, despite cuts of £2bn, which was down to the growth of the private rental sector, rising rents and slow earnings growth
  • This slower earnings growth meant spending on tax credits had not come down as quickly as expected, reducing costs by less than £3bn compared with a forecast saving of £4.6bn
  • "Significant delays" in the replacement of disability living allowance with the "less generous" personal independence payment had led to a £1.6bn increase in spending, rather than a £1.2bn cut
  • Switching from the Retail Prices Index to the Consumer Prices Index measure of inflation for up-rating benefits had not saved the expected £4bn

"All this has important fiscal consequences," said the report's author, Andrew Hood, adding that slow earnings growth could push up spending.

"Mr Osborne wants further cuts to social security spending to help reduce the deficit. He may end up having to make cuts just to stay on track."

Image copyright Reuters
Image caption Chancellor George Osborne will give his Autumn Statement on 3 December

The IFS study comes after Labour released figures it said showed the government had spent £25bn more on social security than the amount it had predicted in November 2010.

The party commissioned the House of Commons Library to compare forecasts made in the 2010 Autumn Statement with how much the coalition had spent since then and intends to spend this year.

Writing on the PoliticsHome website, shadow chancellor Ed Balls and shadow work and pensions secretary Rachel Reeves said savings from welfare cuts had been outweighed by a failure to tackle the causes of rising social security spending.

Richest households

They wrote: "A key cause of the Tories' overspending is their failure to make the economy work for working people, leaving thousands more reliant on housing benefit."

But the Treasury rejected this analysis.

A spokesman said: "The government's long term economic plan is working, cutting the deficit by a third and already delivering over 70% of the £126bn consolidation set for this Parliament.

"At Budget 2013 we announced a cap on total welfare spending for 2015 to 2016 onwards, bringing over £100bn of spending under new controls.

"However, the impact of the great recession is still being felt in the economy and public finances, which is why we need to keep working through the plan that's securing a resilient economy."

Green Party leader Natalie Bennett pointed to a report from the London School of Economics and the University of Essex that said the poorest groups had lost the largest share of their incomes on average as a result of coalition government policies.

She said: "This report once again goes to prove that Osborne's ideologically-driven austerity economics are simply not working."

The Treasury said analysis of annual budget statements had shown the richest households were "making the biggest contribution to reducing the deficit".

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