Blog: The working poor and the welfare cap
By Engage, , , ,

Flip Chart Fairy Tales is a blog written by Rick – HR manager, project manager and business consultant. The blog charts Ricks’ “reflections on business, the world of work and the general organisational crap that we all have to put up with in the course of our employment.”

The working poor and the welfare cap

The details of the government’s planned cap on welfare budgets is published in the OBR’s Economic and fiscal outlook. It’s interesting to see what’s in and what’s out.

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The main benefits for the unemployed and, of course, pensions, are outside the cap. The big lumps inside the cap are tax credits, housing benefit for those not unemployed and disability benefits. As I said in January, any attempt to cut the benefits bill will have to hit the working poor. Pensions are protected and, despite all the rhetoric about the work-shy, the unemployed don’t account for that much of the social security costs.

It’s all very well to say you are going to cap these benefits, though. The trouble is, the forces pushing up in-work benefits haven’t gone away. A recent paper by the Resolution Foundation forecasts that, after falling slightly, the cost of housing benefit and tax credits will rise again in real-terms towards the end of the decade.

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If average pay is likely to stay low for some years yet, and it’s not just the lefties who are worried about this, then it is hardly surprising that the need for in-work benefits is likely to remain high.

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As long as there are significant numbers of the hardworking poor, which it looks as though there will be for some time, pressure on the benefits bill won’t ease by much.

Gemma Tetlow of the IFS made an interesting comment on Thursday:

Recent experience suggests that forecasting changes can cause upwards revisions to ‘welfare in scope’ of this scale

• Example:

  • –  Between Budget 2011 and Budget 2012 economic forecast deteriorated significantly
  • –  As a result, forecast for welfare spending increased
  • –  Forecast for welfare in scope spending in 2015–16 was more than 2% higher in Budget 2012 than it had been in Budget 2011

Which is a polite way of saying that, if the country can’t create enough well-paid jobs to get people off in-work benefits, the welfare cap might have to be quietly raised.

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