On the face of it, the news that the government’s welfare spending cap will be breached for the first three years of this Parliament is a major embarrassment for George Osborne’s Treasury. But Kate Alexander Shaw explains that despite being a failed policy in the short-term, the welfare cap still shapes the debate in support of lower welfare spending.
Announced in 2014, the welfare cap was an attempt to introduce fiscal restraint where none had existed before, subjecting a large portion of Britain’s Annually Managed Expenditure (demand-led public spending) to the same strictures as regular departmental budgets. There would be no more blank cheque for working-age benefits, and Parliament would now hold to account any government that overspent against its stated limits, giving them strong incentives to keep benefit spending within bounds.
In the immediate term, the cap has clearly failed to achieve that end. This week’s Autumn Statement predicted that welfare spending would exceed the cap for the next three fiscal years. Commentators on the left have been quick to argue that the cap was pure gesture politics, and Osborne’s airy tone in announcing the breach might seem to support that conclusion. It would, however, be a mistake to believe that the welfare cap was not a serious policy, or that its strategic purpose is now moot. Instead, consider that the Chancellor is playing the long game on welfare reform, and that a battle lost now might still contribute to a successful war effort if it leads public debate in directions that gradually build support for a less generous system of entitlements.
The mechanics of the welfare cap require a debate in Parliament in which MPs vote on whether the cap, or welfare policy, should be adjusted. Whereas Blair and Brown judged that redistribution of income was best done quietly, and kept tax credit policy out of the headlines as far as possible, Labour will now have to choose between criticising the government for breaching the cap or publicly making the case that higher welfare spending is necessary. Neither option will be comfortable for them, but the welfare cap debates are designed to remove their ability to fudge the issue. Far from being a disaster for George Osborne, breaching the welfare cap sets up a series of Parliamentary set-pieces that will be far more uncomfortable for the opposition than for the government.
It does not appear that breaching the cap was the Conservatives’ Plan A: they fought too hard for their Tax Credits Bill for one to doubt their sincerity. Cutting welfare spending now would have been preferred to cutting it tomorrow. But as a Plan B, a breached welfare cap still has the virtue of opening up a public conversation in which spending on benefits is explicitly framed as too large, and the only criticism that can be directed at the government is that they have not been ruthless enough in cutting it. For a Conservative party committed to reducing the generosity of the social safety net in the long run, such framing can only be helpful.
The parallel with the regular “debt ceiling” debates in the United States is instructive: in the US, the existence of an arbitrary and rigid limit on fiscal policy invites regular scrutiny in which the resultant public debate puts the fiscal hawks on every news bulletin. It is taken as a given that the government’s spending ambitions are at the limit of the acceptable, and that the only question is where the axe should fall in order to get spending down again. A broader conversation about what citizens want from their government, and how much they will pay for it, becomes impossible when the starting point is “government overspends again”.
The welfare cap has the potential to play a similar role in British political debate, so long as the headlines focus only on whether the government has met its spending target, and ignore how that target was set in the first place. Those who do not wish to see further austerity in the welfare budget cannot afford to score short term points over a “failure of fiscal discipline”; doing so concedes the terms of debate to those who prize fiscal restraint over social justice. Just ask the Tea Party.
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Kate Alexander Shaw is a PhD candidate in the Department of Government, and a former Treasury official. She tweets from @KAlexanderShaw and you can also watch her discuss the 2015 Autumn Statement here.
Featured image credit: UK Parliament CC BY-NC 2.0