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Countdown to the Spending Review: where the benefit cuts will bite

The day of the spending review looms. In the second of a daily series in the run-up to 20 October, we brief you on the outlook for further cuts in welfare spending.

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by Lorna Bourke on Oct 13, 2010 at 00:01

Countdown to the Spending Review: where the benefit cuts will bite

The day of the spending review looms. In the second of a daily series in the run-up to 20 October, we brief you on the outlook for further cuts in welfare spending.

Our first article looked at the battle over the defence budget and one officer's view of how the armed forces have been badly mismanaged for years.

Child benefit: the first cut of many

Whether we like it or not there will be cuts in benefits and they are likely to affect most of us. We have already seen the government’s willingness to reduce spending on universal tax-free benefits in the restrictions against child benefit. Few would argue against this as they are wasteful and unnecessary if you believe that handouts are meant to be a safety net for the poor.

So far we have seen a reduction in child benefit for any household where there is a higher rate taxpayer, due to take effect from 2013. This would have gone down better if the cut had affected all households with incomes over £44,000 a year but it doesn’t.

Families with two earners with incomes up to £43,875 each, or £87,750 in total will still receive £20.30 for the first child and £13.40 for subsequent children worth £1,752 a year for a family with two children. Cameron has hinted at a concession on transferable personal allowances for married couples to compensate some who lose out – but don’t hold your breath. The reduction in child benefit will save at least £1 billion a year, possibly more, out of a total cost of £7 billion and rising.

Nothing is sacrosanct

So far winter fuel allowance has not been a victim of the cuts. But nothing is sacrosanct and there can be little justification for paying this benefit to pensioners who are higher rate taxpayers. It is a one-off payment of £250 for anyone born before July 1950 (those 60 years old or more) or £400 for the over 80s and costs £2.7 billion a year.

With both these universal benefits it would make better sense to abolish them altogether and increase child tax credits and pension credit for the poorest families.

Cap in housing benefit

The coalition has also announced cuts in housing benefit the cost of which has rocketed in recent years to £20.8 billion a year, up from £11.1 billion since Labour came to power in 1997. Recent figures showed a total of 4.5 million people are receiving housing benefit, of which around three million are of working age.

The caps on housing benefit are £250 for a one-bed property and £400 for four or more bedrooms. The average monthly private rent in London was £900 in 2006/8 compared with an England average of £574. This is estimated to save £1.8 billion out of a total cost of £20.8 billion a year – but there could easily be further reductions here.

We know too there will be a cap on the total amount of benefits that a family receives, which will be set at the average earnings of a working family. The cap, which will affect around 50,000 workless families, will be set at £500 a week or around £26,000 a year. This is still relatively high as the benefit cap is net of tax. To be left with take home pay of £26,000 a working person would need to earn around £35,000 before tax. So there will still be families who are better off on benefits than working. This ‘universal benefit’ will be introduced over the next five years.

There is already in progress a clampdown on the 2.7 million individuals claiming disability benefits totaling over £11 billion a year and there is widespread abuse of the system.

Big benefits bill

For those who believe that benefits shouldn’t be cut it is worth bearing in mind that the total benefits bill has risen from £93.3 billion a year in 1997-98 to an estimated £148.6 billion in the current financial year. That total is set to rise to £153.9 billion next year. This is roughly equivalent to the entire take from income tax. Of the total, state pensions and pension credit account for some £77.5 billion which is generally regarded as untouchable. But it clearly leaves plenty of scope for further cuts in other benefits.

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18 comments so far. Why not have your say?

Benefits should not be index linked and should be less readily available. People who claim to be too ill to work should be able to prove it and I would discount conditions such as "stress" which cannot be adequately defined. Unmarried mothers should be made to work as living on benefit is seen as a "lifestyle choice" by many who expect that the state will as a matter of course pay for their keep.

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I am all for large cuts in Benefit payments for the real "workshy" who will not take jobs offered or do their best to lose jobs soon after starting them.

Same applies to all recent immigrants to the UK, if they work then fair enough but after their qualifying year is up and they try to claim large amounts of benefit then give them a one-way ticket back home.

I could go on with many other cuts but lets give others a chance to say their bit.

One thing I am not in agreement with is abolishing the Winter Fuel Payment for senior citizens. Yes maybe for those on a higher tax rate but don't take it from the needy, I remember during hard winters in the early 1980's that many pensioners died through illnesses caused by cold weather and damp, cold homes.

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Raise the state pension by £5 per week and scrap the Winter Fuel Allowance.

Poor pensioners will have the same income. Other pensioners will have to pay tax in the normal way.

Also, all the administrative costs of the Winter Fuel Allowance will be saved.

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As a pensioner, I consider the Winter Fuel Allowance a psychological breather as well as monetary comfort to the retired whose access to additional income has been significantly reduced.

Is it nice that the heat can be left on for a couple of more hours during the period of bitter Eastern wind, even with the knowledge that the pension can never keep up with the rise of energy prices.

Pension Credit is not a most welcome terminology. The Labour should have provisioned decent pensions in their long period of office instead of wrangling around with the level of credit. Why should there be more sick and poor in a long span of 'boom'.

To some extent, I agree with A Anonymous in his proposal to raise the pension by £5 a week and remove the Winter Fuel Allowance altogether. However, he may find anomalies exist even with his well-meant suggestions -

- at present, the Winter Fuel Allowance of £200-£250 is an one-off payment, shared equally should the husband and wife be both pensioners. It is paid at the time when it is needed and at an adequate lump sum which can make a difference. Spread of the same amount over 52 weeks may lose its original intent.

- a general increase, can be argued in the word 'fairness', benefits overseas residents who get free Winter sun

- the reduction of benefit to higher tax payers is marginal, the highest tax band being 50%, if there is sufficient number of higher tax payers to make an impact

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How to make your party popular:

Raise taxes for the working much higher esp hitting the lowest earners most, well hell raise them for all really!

Increase other taxes VAT already scheduled for 20% in Jan 2011, 25% in 2012? Additional oil taxes.

Cuts to Defence, NHS, Schools, Police, Councils, Road maintenance, others.

Increase public transport charges, remove concessions.

Increase parking charges and fines.

Allow prisoners far earlier to cut prison numbers also good for the statistics.

Reduce benefits to the most vulnerable, especially the old and disabled - reclassify them so they are neither retired or disabled. Free TV licenses now only for the over 90s

Print reams of money give it to the banks, then get the public to pay for it (many times over) leaving them impoverished for decades to come. Trash your currency and pay savers near nothing for the privelige.

Watch as commodities inc. oil and food sky rocket in price and drastically cut peoples wages. Lay-off as many people as possible, why employ when you can destroy?

Act surprised when crime and violence rise, but no need to worry you have a shoot to kill policy in place which neatly circumvents your entire legal system! and anyway....

Censor the news so that the people don't know just what is really going on with the war, they economy and all the austerity measures. Print more money, the bankers need bigger bonuses.

Savers hoping to live on their interest getting poorer, anyone with paper money getting poorer.

Increasing mortgage defaults as a result of less jobs and higher prices of everything. Falling property prices increasing negative equity.

Rising inflation in a deflationary environment - ouch!

Go back top and repeat until broke.

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I am amazed at the the news of the cuts envisaged by the Government, all I hear is cuts to the very fabric of my country in particular:-

My grand children who are academically gifted and go to university seem to be destined to get to 23years old with a debt now of £20,000 , just when thay may wish to marry and settle down, goodness what it will be in the future. where will the next generation come from and what will this do for the demography o f the country.

The country as a whole appears to me to be worth far more than the the present deficeit, the amount of money spent on property , horses , 4by4 trucks, holidays abroad, eating out, sports must surely be more than£150 billion per annum.

I have a suggestion to make why not have a annual property tax until our defecit is tamed,it has the advantage of avoiding penalising the the most vulnerable, and using the latent wealth tied up in the country.

If we actually do what these wealthy politicians ( when were they out of work )are proposing the state will lose the goodwill of people out of work ,the work that they do ,the taxes that they pay and still have to keep them.I have to conceed that there are abuses in the Benefit system , but the system when regulated vigorously , is the support to the what I hope is a caring society

The whole of the debate seems to me to smack of political dogma from people who will not be affected personnally by their actions rather like a school debating society.

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There is fantastic scope to cut wasteful spending without impinging for a moment on any of the really needy. Red tape and bureaucrats have burgeoned, especially in 13 years of Socialist misrule, when Big Brother started to oversee our every move.

You can cut out tens of thousands of box tickers- and the rules they have to enforce- without anyone noticing.

Any teacher, or anyone trying to run anything, will tell you they have to waste hours proving they have conformed to political correctness and any one of a score of other useless and wasteful ideas.

Why are heads of councils- they used to be called town clerks in a more rational age-paid huge six figure sums? Plenty of capable people would do their cushy jobs for half the money.

Don't cut nurses, cut the useless bureaucrats: the NHS has more administrators than hospital beds!

Don't cut the army, halve the basically useless tens of thousands of brain dead staff in the Ministry of Defence - you know, the people who enjoy fat pensions and perks while failing to ensure our troops have vital equipment.

Cut, cut and cut some more. There are layers and layers of fat in town halls and Whitehall.

Cut out our wasteful wars- wasteful in lives and money. We will never "win" in Afghanistan- just read the history books, or ask the Russians.

Stop all immigration of those with no skills useful to Britain and kick out the millions of scroungers who alight on our shores looking for handouts.

Tackle our own scroungemeisters and layabouts, of whom there are legions. Why, for example, are we finding lots of work for Polish builders? Because they are skilled, turn up on time and do a hard day's work for fair wages. Why waren't any of the millions of young British unemployed vieing for their jobs?

In fact, look hard at the billions wasted on so-called education, when I am meeting young men and teenagers unable to read or write! This is not in a "needy" area, by the way, but in south east England.

I'm sick of hearing about and knowing people "on the sick" - Britain's greatest growth industry. Take away all their handouts and see how sick they are! (WIth exceptions for the minority of really genuine sick people, of course.)

The cuts so far talked about do not even begin to tackle what is needed. Let the axe fall-bring it on!

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Alan ---------- Spot on 1

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I totally agree that welfare spending, which has been on the increase especially over the last 10-12 years, should be reduced BUT I do not agree that the cuts should be as drastic as the coalition government are determined they should be.

The cuts to public sector services will mean the lose of teaching, nursing, firemen, bus, train & tram drivers at a time when we are actually allowing the banks to do as they please - this smacks of hypocrisy to me - why not get the deficit (which has been in the main caused by bailing out the banks) paid off by the banks?

The reality is that no one in the current government have any idea of what it is to lose your job, your home, & live on welfare.

The actions by this government do not add up: they would like to reduce welfare spending, at the same time as more people will face claiming welfare, as a result of job losses - anyone with an iota of common sense will admit this does not work, only those born with silver spoons in their mouth cannot work this out for themselves - they need to pay private companies to come in & audit & pay them millions, but nurses, teachers, & other genuinely needed service sectors will face huge disruption & loss of skilled people!

The reason I work in the public sector is because I like to think that the work I do enables our organisation to help provide a better service. Many people in the NHS are being forced to take early retirement - this does not mean any savings, either in the short or long term - the organisations have to fund the early retirement packages & there will be a great loss of skill.

On the one hand governments want workers to continue working till they are older, but in the short term many in their fifties face redundancy - where will those made redundant get employment - many employers do not want to employ older people, hence the legislation to enable people to work till they are older.

Very little government policies make sense to me - the policies have all been dreamt up by someone wet behind the ears, who still has nanny changing his nappies!!!!!

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////I am all for large cuts in Benefit payments for the real "workshy" who will not take jobs offered or do their best to lose jobs soon after starting them.///

I see the usual bigoted crap being spewed out here.

Get a life mate.

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What is worrying me is the cuts that are likely to affect Social Care (Social Services) since unlike health spend they are not protected. We are promised that the commission on the future funding of Social Care will report within 12 months. Once the government receives and considers the report, goes to public consultation, drafts the legislation, passes it through parliament, and sets up the mechanism to administer the new system and trains staff, I cannot see this being achieved in before spring 2012. Meanwhile Social Care is thrown into the keep net.

Whilst councils will do their best to protect this vital service, with the scale of cuts envisaged it is inevitable that Social Care cannot be totally protected.

Meanwhile pressures on the service is ever increasing. The most obvious pressure is the growing number of people with alzheimers. In addition to this there are more premature babies surviving, but with disabilities, who will require lifetime support. In the past people with Learning Disabilities had a shorter than normal lifespan. 20 years ago it was unusual for someone to reach 60, now it is common. These are just examples of some of the pressures.

In response councils have already tightened the eligibility criteria for who is eligible for services. I have recently been working with a group of Alzheimer sufferers. The majority of sufferers and their carers are over 70, with a cosiderable proportion over 80. They care for their partner, relative, is 24/7. Many have longterm health problems of their own. Caring for someone who needs constant supervision, in many cases, even at night since some cannot recognise night from day. No one in the group receives any support from social care, until there is a crisis. For instancet the carer has to go into hospital. Who else do you know who is on duty 24/7 365 days a year? The government say that they will protect the vulnerable. Really?

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ivanhoe

This is an open forum for any opinions or vies. I read any sensible comments posted on Citywire and fully accept that others are free to express their own views.

I do not follow politics, religions or groups so I can hardly be classed as a bigot. Funnily enough no benefit cuts apply to me nor will they ever do, as I have relocated from what is left of a place that used to be called United Kingdom or Great Britain because unfortunately neither United or Great really seem to be an accurate description these days. It has been totally shafted for a good 10 years or more, that is why I made my own provisions and will not be relying on any State Benefits.

I just genuinely feel for a lot of the Senior Citizens who have lost interest on their lifetime savings and now it is suggested that winter fuel allowances should be taken too....

Enjoy your sad life mate

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If anybody has a sad life mate, it's you.

On reading your posting, the name Alf Garnet sprang to mind.

And there was never a sadder character, played brilliantly by Warren Mitchell

Britain in my view was never "great", this is a myth perpetuated by the empiralistic arrogance that many indeed still have.

The work ethic no longer applies in Britain, the system brought in by the Tory's and remained with New Labour works again those who have nothing.

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See the Bigot label applies better to you then, You seem more interseted in pushing your views on politics, classes and probably race.

Life is fine out here mate, no winter weathwr or sad ones like you.

Now hurry up and take your blood pressure pill, them get yourself down to the Jobcentre and sign on for your benefits (glad I don't pay taxes to subsidise yours),

I am just off out for a cold beer and a massage, cheers

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Ive worked all my life, and im still working, never had a days dole in my life.

And unlike you im no Alf Garnett hiding away in some EU country because I havent the guts to stay in my own country.

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What is Dole? Come to think of it, I am glad that you weren't assisting me with my investment decisions or I could not have retired at 45 and living it up on the other side of the world... far from the broken EU. Every assumption you have made about me has been wrong you bitter, twisted little individual.

The only reason I would need guts to stay in the UK is to watch my Pounds dwindle as time goes by due to high taxes, none where I live now and I paid all my dues when I did work. Life is quite nice without having to work 5 months every year just to pay taxes, instead swimming, barbeques, friendly neighbours and no twats to deal with is much of an improvement.

Oh, 28 degrees already, pass me my fresh mango shake... cheers

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Dole is unemployment benefit you fool.

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Reader61

Oct 15, 2010 at 12:55

They should also take into account money received by divorced or single mothers/fathers receiving untaxed amounts from ex partners. Many of them play the "poor me card" yet receive many hundreds or even thousands of pounds in maintenance. The maintenance amount can often exceed the take home salary of an average worker yet they still get benefits on top of that.

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