4 Oct 2010

Osborne imposes cap on family benefits

Chancellor George Osborne announces a tough new cap on the amount of benefits to be claimed by any family. Our Economics Editor Faisal Islam says that around 50,000 families will be affected.

Osborne imposes cap on family benefits

In his keynote speech to the Conservative conference in Birmingham, the Chancellor pledged to combat national debt by imposing new limits on the total amount of welfare payments received by families in the UK.

Mr Osborne said that, with the exception of war widows and those claiming Disability Living Allowance, “no family will be allowed to receive more in benefits than the average family receives for going out to work”.

“It’ll be a new welfare state where it always pays to work,” he added. “No more open-ended chequebook. A maximum limit on benefits for those out of work, set at the level that the average working family earns.”

Based on the average working family income, household benefits would be capped at around £500 per week, or a £26,000 a year by 2013.

It is expected to affect tens of thousands of families and save up to £1bn each year.

The announcement came as Mr Osborne said the government would axe child benefits from families where one parentis in the higher rate tax band – currently around £44,000.

Mr Osborne defended the Coalition’s planned spending cuts, saying they are necessary to keep Britain’s debt under control.

“It will be tough but fair, because we’re all in this together.

No family will be allowed to receive more in benefits than the average family receives for going out to work. It’ll be a new welfare state where it always pays to work.Chancellor George Osborne

“Without reform, it is financially unaffordable and morally indefensible.

“Those with the most need to pay more. We demand that richest in our society bear the burden.”

The cuts to child benefit payments will come into force by 2013.

Mr Osborne defended the need to implement deep spending cuts now, saying it is a mistake to believe cuts will be smaller and easier if they are delayed.

“Now, let me tell you what a structural deficit is. It’s the borrowing that doesn’t go away when the economy grows,” he said.

“And we have £109bn of it. It’s like with a credit card. The longer you leave it, the worse it gets. You pay more interest. You pay interest on the interest. You pay interest on the interest on the interest. And we are already pay £120m of interest every single day.”

He said implementing cuts was the only way to combat mounting debt and spiralling repayment costs.

“Any other road leads to ruin. If we don’t get a grip on government spending there will be no growth,” Mr Osborne said.

“Today I want to explain to the British people why we have to sort out the public finances, how we will do it and the prize at the end – a reinvigorated, prosperous, united Britain of which we can all be proud.”

He also said he would not allow banks to pay out huge bonuses if they do not lend to small business.

The Chancellor’s speech comes as he prepares to publish his comprehensive spending review in 16 days’ time.

Waving goodbye to universal benefits 
Goodbye universal benefits. Goodbye tax credits too and hello to the Universal Benefit/Credit, writes Economics Editor Faisal Islam.

It is a longstanding piece of politics that some benefits are universal. It creates some sort of 'buy-in' from the wealthier in society. It is a statement of social solidarity.

Child benefit was the totem of that. It is, notably, paid to the mother. It is a survival benefit for the poor. Plenty of middle income people needed the money too. I have known rich people use the money to sponsor children in Africa. The prudent wealthy will lob it into a trust fund.

Today it stopped being universal.

Read more on Faisal Islam's blog

Richard Lambert the Director General of the CBI said: “It was a very different speech to last year. Last year he was telling us how painful it was all going to be. This year he was telling us that it’s going to be painful, but it’s a means to an end and happy times lie just across the horizon.

“Obviously it was constrained by the fact that in two weeks’ time he’s going to make this massive announcement on public spending, so he didn’t have many rabbits to pull out of the hat. So it was more about general aspirations and values than about crunchy information, and he was trying to tell the public why the cuts were necessary, how broadly they would go about it and why it was worth doing.

Brendan Barber, the General Secretary of the TUC, said: “I thought it was a kind of confident performance, without anything really new. The big decisions are coming down the track in the comprehensive spending review.

“But the section on benefits is pandering to a rather nasty dimension of the Conservative party, and I don’t think it reflects the reality for people desperately looking for work.”

The London Mayor, Boris Johnson, said he supported the cuts to child benefit for those on high incomes.

“I don’t think it’s reasonable that people on very high incomes should be receiving substantial sums of money in child benefits. I’ve always thought that and I think George Osborne is the first Chancellor to bite this political bullet and do it,” Mr Johnson said.

The Cabinet Office Minister, Oliver Letwin, defended the spending cuts, saying everyone must share in the financial burden.

“We are trying to be fair and make sure that we all share in the burden of fiscal consolidation that we have because of the terrible mess we were left in,” Mr Letwin said.

Alison Garnham from the Child Poverty Action Group said she was “appalled” by the announcement on Child Benefit. “I don’t see why families with children should be paying for cuts. It means that large families will lose out – that’s not fair.”

Rachel Jones said that as much of the speech had been “heralded”, she was “a bit disappointed” more time was spent on Labour’s legacy than on the policy announcements. “The devil will be in the detail,” she said.

But Rashid Ebbrahimkhan, from Church End Conservatives in Redbridge thought it was a very good speech. He said the message the party needs to get across is that “people should not live on benefit as a lifestyle choice.”