'Include pensions' in welfare cap

George OsborneFuture governments will have to shave billions of pounds off public services like education and health unless state pensions are included in a welfare cap, a think-tank has warned.

The overall limit set to be outlined by George Osborne on Wednesday will be "meaningless" if, as expected, the bill for retirement payouts is omitted.
%VIRTUAL-SkimlinksPromo%The assessment came in a paper for the right-leaning Policy Exchange think-tank, written by former Treasury official Matthew Oakley.

It pointed out that the state pension bill is due to rise from 5.6% of GDP in 2016-17 to 8.3% in 2061-62 as the population ages. That is equivalent to an increase of around £40 billion in today's money.
Mr Oakley argued that to keep a lid on overall government spending the promised cap on large sections of the social security bill had to include pensions, otherwise politicians will need to make deeper cuts to public services like education, childcare and health.

Mr Oakley said: "If Britain is to tame its public debt and constrain growth in the state, welfare spending must be controlled. It has risen by 133% as a proportion of GDP in the last 50 years. This makes a cap on Annual Managed Expenditure (AME) essential.

"But it has to include the full range of benefits, including pensioner benefits and the state pension. Without this, any proposed cap would be meaningless and fail to recognise the real drivers of rising costs. It's time for an honest conversation with the public."

The Treasury has already signalled that state pensions will not feature in the mooted AME cap - but Labour has suggested that it would support including them.

The paper emerged after a ComRes poll for The Independent found the majority of pensioners did not want special protection from austerity.

Some 56% of those aged 65 and over agreed with the statement that pensioners should "be no more immune to the impact of government spending cuts than other members of society".
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