Budget 2014: The welfare cap explained


Budget 2014

In his Budget speech, George Osborne announced that the welfare cap would be set at £119.5 billion in 2015. He said that this mechanism would ensure that we will: "never again allow costs to spiral out of control" or allow perverse incentives to bring about a situation in which it pays not to work.

But what does this cap actually do?

The cap

The idea is that in future, when a government takes power, they will lay out how much they intend to spend on benefits during the life of the parliament. This will specifically exclude state pensions and jobseekers' allowance, but will include everything else from housing benefit to the employment and support allowance, pension credits, incapacity benefits, child benefit, maternity pay and universal credit.

If the cap is breached at any time, the government will have to explain why, and a vote will be held in parliament: it will force them to either cut welfare spending or seek parliamentary approval. In his speech Osborne said: "In future, any government that wants to spend more on benefits will have to be honest with the public about the costs, need the approval of Parliament, and will be held to account by this permanent cap on welfare."

In some ways setting a cap on total spending (and then sticking to it) is part of sensible financial management. Labour has also pledged its support for an overall cap on social security spending in the short term - although theirs would include pensioner spending.


In reality, there will be few consequences for Osborne in the immediate future. He has set the cap above his projected spend on welfare in the next two years. In 2015 he expects to spend around £113.1 billion, and in 2016 around £117.9 billion, so it shouldn't be difficult to stick to his promises - barring any sudden and unexpected changes.

However, over time there's every chance that the cap will eventually restrict benefit payments. Osborne has hinted that it will somehow protect the vulnerable and the hard-working, while ensuring that it doesn't incentivise people to sit around doing nothing.

However, it's worth noting that two thirds of tax credits that fall within the scope of the cap go to people in work - which means any squeeze would hit them. Likewise it also includes disability benefits and those for people who are too ill to work. These are surely some of the vulnerable groups Osborne agrees need to be protected.


What it will be effective in doing is establishing a very Conservative yardstick for the general election. To appeal to voters who want to see a hard line being taken on 'scroungers' the party can pledge to bring down the cap in its manifesto. If the Labour party doesn't follow suit, then it will have a stick to beat them with during campaigning. If another party gains power, the cap will thwart any efforts to boost welfare spending - unless they want a very public debate.

It essentially encapsulates a Conservative mindset - where low taxes and a lean welfare state are the only sensible approach - as the prevailing vision of government. Clearly it's a useful political tool. Whether it turns out to be a vital way to prevent overspending without harming the vulnerable in society remains to be seen.