Spending Review: Pensioners shielded from new cap

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PENSIONERS are to be protected from a new cap on welfare payments, which is at the heart of the coalition government’s efforts to get public spending under control.

• Bill Jamieson: Cuts can’t hide the looming debt timebomb

George Osborne announced a further round of austerity measures during the Spending Review. Picture: Getty

George Osborne announced a further round of austerity measures during the Spending Review. Picture: Getty

Spending review as it happened

• Scottish government budget in 2015/16 will be £25.7 billion and capital budget will be up £300 million. Overall spending is up 13 per cent.

The measure was announced by Chancellor George Osborne yesterday in his spending review for 2015-16, as he also confirmed that departmental spending would be cut by £11.5 billion.

In a statement to MPs that placed welfare at the heart of the 2015 General Election campaign, Mr Osborne also announced new policies, including a “temperature test” on winter fuel payments to stop expat pensioners claiming the benefit.

His package of measures to reduce the welfare bill by £4bn means jobseekers will not receive any support for the first seven days after their first claim for being out of work.

Mr Osborne also announced an English language test for those claiming jobseekers’ allowance, and free lessons and exams for who need them.

The Chancellor insisted the austerity measures he introduced in the 2010 spending review were working and Britain was “moving out of intensive care, and from rescue to recovery”.

Listing the government’s successes, he said the deficit had been reduced by a third, there were three new private sector jobs for every job lost in the public sector and the proposed total government spend of £745bn in 2015-16 was £120bn less than planned by the previous Labour government.

But with health, schools and international aid spending protected, Mr Osborne was warned by the influential think tank the Institute of Fiscal Studies that he would “need to raise taxes” and was in effect extending austerity until 2018.

Labour shadow chancellor Ed Balls said the new round of cuts represented a “comprehensive failure” of Mr Osborne’s economic strategy.

However, the Chancellor mocked Labour as the “Welfare Party”, pointing out that they had opposed the £18bn of cuts in benefits introduced since 2010.

It also emerged more than half of welfare payments will not be included in the new cap, with jobseekers’ allowance and state pensions both excluded.

“Cutting pensions for paying for working-age benefits is a choice this government is certainly not prepared to make,” Mr Osborne said.

The cap on welfare will be set at the total level of payments as of April 2015. If the government looks like exceeding the cap, it will receive a public warning from the independent Office for Budget Responsibility and will either have to limit payments or explain to parliament why it is breaking the cap. Despite targeting welfare, Mr Osborne told MPs that the richest 20 per cent of households would be hit hardest by the latest measures, while the top 10 per cent of earners would pay the most.

But he admitted there would be more public sector job losses and announced a major restructuring of pay, which will end automatic progress to higher pay bands for teachers, nurses, prison officers, police officers and civil servants, a move the Scottish Government yesterday signalled it was prepared to block.

The biggest winner from the review was widely seen to be Defence Secretary Philip Hammond, who was told to find savings of more than

5 per cent, but walked away from tough negotiations with a cut of just 1.9 per cent to the defence budget.

The Home Office will be hit by a 6 per cent cut, but the security services, including MI5, MI6 and GCHQ, were given a major boost, with a 3.4 per cent increase to funding, with Mr

Osborne praising their “heroic” efforts to “protect us and our way of life”.

Meanwhile, Liberal Democrat Business Secretary Vince Cable saw his department’s budget go down by 6 per cent while the Chancellor also announced a £2bn annual enterprise fund to promote growth.

Mr Balls said it would be for the “next Labour government to turn the country round in a fair way”.

He called Mr Osborne an “out-of-touch chancellor”, who had “failed on living standards, growth and the deficit, and families and businesses are paying the price for his failure”.

TUC general secretary Frances O’Grady said: “This is a toxic mix of bad economics, nasty politics and dishonest presentation.”

There was also criticism from business, with the Institute of Directors claiming that the Chancellor had not gone far enough.

Its chief economist, Graeme Leach, said: “The spending review leaves business feeling like Oliver Twist – more please, Chancellor.”

However, John Cridland, CBI director-general, said: “The Chancellor has carefully walked a tightrope of protecting growth, while making sizeable savings to pay down the debt.”

WHAT NEEDS DONE

The Scottish Government has already published a list of costed “shovel ready” projects.

They include:

£65m FE College infrastructure

£188m Repairs and improvements to NHS sites

£34m Trunk road maintenance

£63m Clyde Gateway development

£40m Affordable housing

£12m Estate improvements to national parks

£40m Scottish Enterprise economic development projects

£11m A68 improvements from Pathhead to Tynehead

£119m Port of Leith masterplan