George Osborne has set in train plans to breach the Treasury’s welfare cap after deciding he cannot find enough savings to compensate for the decision to slow the pace of cuts to tax credits.
The chancellor has held discussions with the Department for Work and Pensions (DWP) to arrange a Commons vote that would give the government permission to breach the cap.
The vote will be passed by MPs but the decision is likely to be seen as a political embarrassment for Osborne, as he largely invented the self-imposed cap in the last parliament in an attempt to show Labour was lax on welfare spending. In the end the shadow chancellor, Ed Balls, embraced the cap.
The request to the DWP suggests cuts to housing benefit likely to be found in Wednesday’s autumn statement will fall short of the £4.4bn that would have been saved by changing the threshold of tax credit payments.
Osborne has many options to mitigate the impact of the tax credits and some would not require him to bust his plan to have the budget in overall annual surplus by the end of the parliament, probably the single biggest target he has set himself.
Osborne, speaking on BBC1’s Andrew Marr programme on Sunday, referred to the need to go back to parliament if he was to breach the welfare cap, but he was not pressed on whether he intended to do so.
Osborne will announce big cuts in spending for the police, social care, local government, further education, renewable energy and welfare as he is forced to finally spell out how he plans to have reduced spending in key government departments cumulatively by nearly 50% since the Conservatives came to power in 2010.
After weeks of media focus on protected Whitehall departments, the chancellor will detail how the cuts will fall across the rest of government departments.
The shadow chancellor, John McDonnell, said Osborne had no more excuses left after five years. Stealing Osborne’s security theme, he added: “The cuts are putting people’s livelihoods at risk.”
The Tory election manifesto commitments to protect the NHS, pensions, foreign aid, education and defence have put intense strain on the remaining unprotected budgets in Whitehall. Such is the reconfiguration of the state that nearly 43% of all public spending will be focused on health and pensioners by 2020, up from a third in 1997-98.
The highest profile victim is likely to be social care despite a pledge to allow councils to raise an extra £2bn in council tax earmarked for social care by the end of the parliament, but councils in the north of England with a lower council tax base have warned that the extra cash is not even a sticking plaster.
Police chiefs are also preparing to lambast the home secretary, Theresa May, for not doing more to protect their budgets, weeks after a new police funding formula collapsed due to Whitehall miscalculations.
In what is a full reversal of Labour’s decade-long expansion of the British state, Osborne will insist the public finances must be in overall surplus by the end of the parliament, taking the political gamble that there has been no change in public attitudes to the deficit and austerity across the UK.
Speaking to the BBC’s Today programme on Wednesday morning, Paul Johnson, director of the Institute for Fiscal Studies thinktank, said the chancellor’s target of bringing the budget back into surplus by 2019 was a tough one.
“The problem with this target is – very much unlike the targets he set himself over the last parliament – it is fixed and inflexible, so if it turns out that the economy does even a little bit worse than he’s expecting over the next few years, I think it will be close to impossible to meet, unless he’s going to put some tax increases in place,” he said.
“If the economy pans out as he currently expects, tax revenues come in as he expects, it might be just about reachable, but only at the cost of really big cuts in things like the Home Office, local government and other departments.”
The bulk of the political focus will be trained on how Osborne, blocked by a twin revolt in the House of Lords and on his own backbenches, recalibrates his plan to slash £4.4bn from the tax credits bill next April. He is expected to fund the anticipated slowdown in the cuts through alternative welfare reductions, including to housing benefit, which will hit a similar but different tranche of the working poor.
The welfare cap was introduced in the 2014 budget and includes most disability and sickness payments, as well as tax credits and most housing benefits, but it does not include jobseekers’ allowance or the state pension.
The chancellor will try to steer the public’s gaze towards his plans to boost affordable housing by promising to deliver “the biggest affordable housebuilding programme since the 1970s – with over 400,000 new homes built across England”.
Promising to double the housing budget, Osborne is expected to admit there is a home ownership crisis in the UK, saying: “In the end,spending reviews like this come down to choices about what your priorities are. And I am clear: in this spending review, we choose housing. Above all, we choose homes that people can buy.”
