Politics

The Emperor Has No Cap

April 03, 2014
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Who said what to whom?

This is an unusual one. The House of Commons as a whole made a commitment not to let the Government spend more than £119.5bn on (some elements of) welfare in 2015-16.

What does it mean?

If spending rises above the stated amount, then the Government must hang its head in shame in front of Parliament. It must propose policy measures to reduce welfare spending, seek approval for the cap level to be increased and explain why a breach of the cap is justified. In other words, the cap is an “embarrassment device” rather than what behavioural economists might call a “commitment device.”

What could go wrong?

Like all the best commitments, this one can be side-stepped. The cap applies to spending on benefits, not to spending on benefits recipients in general. Think of it this way: child benefit is covered by the cap; you could keep within the cap by cutting child benefit, but then give children free school meals of the same or higher value. Hang on. That already happened.

Here’s another example: the Government could reduce 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). Oh wait. They’re already doing that one too. In other words, the cap isn’t even an embarrassment device. The Government will keep finding new ways to get around it, if it so wishes.

When will we know?

The Government has to report to Parliament at every Autumn Statement on whether it expects to keep welfare spending within the cap or not. But its measures to get around the cap could come at any time in the year.

Commitment rating: 1

The cap doesn’t cover all benefits, and its level is forecast to move in line with existing forecasts for benefits spending. Plus, there are a range of ways by which the Government can get around it. For better or worse, this cap isn’t really a cap at all.