Any challenge from the Institute for Fiscal Studies is a hard one for George Osborne to dodge.
The tax-and-spending watchdog wants him to explain how he plans to cut welfare spending in the next parliament.
The coalition has failed in the last five years to reduce the welfare bill. And welfare cuts form a centrepiece of the Tories’ plans for the next five years.
Paul Johnson, the IFS’s director, said that without welfare cuts, the impact on Whitehall spending during 2016-17 and 2017-18 would be “twice the size of any year’s cuts over this parliament”.
The Office for Budget Responsibility had already made its views plain. It said the squeeze on real spending between 2016 and 2018 would be tougher than anything seen over the past five years.
The implications of failure for Osborne would be huge. If the £12bn welfare cuts and hoped-for £5bn of anti-tax avoidance measures fail to materialise, any hope of a reprieve for local government, transport spending or the defence budget would be dashed.
Looking back over the last five years it is easy to see why welfare has proved a hard nut to crack. A cut in tax credit entitlements has done little more than put a brake on their inexorable rise. Housing benefit has proved equally stubborn. And pensions, which make up about half the welfare bill, have increased, handing pensioners an extra £4.6bn by 2014-15, according to the IFS.
There is a possibility wages are about to take off, making workers better off and giving the next government an easier time when it proposes further restrictions on tax credits. The cost of jobseeker’s allowance could also come down further should employment carry on climbing, (though it accounts for only a tiny fraction of welfare spending).
That still leaves housing benefit, which is likely to rise in line with escalating rents, and David Cameron’s promise to maintain all pensioner benefits without any means testing. And pensioners are in line for an inflation-busting rise of 2.5% in the state pension next month.
Worse could be to come. Inflation on the consumer prices index was 1.3% in September and 0.3% now. It looks like staying low all year. That means gains on most welfare benefits from low inflationary rises are offset by another above-inflation increase next year for pensioners.
Taking all these factors into account, the welfare bill will at best be static, but very probably going up. It is not going down.
Which makes Osborne’s challenge to the OBR after the budget all the more disturbing.
“That is not actually the approach that we, as Conservatives, will take,” he told BBC radio. “We want to take a more balanced approach and we would not put all the cuts in the government departments as the OBR forecast shows.”
If Osborne thinks welfare can be cut, he needs to tell us where and how.
Johnson at the IFS wants an answer. About the cuts, he said: “It is time we knew more about what they might actually involve.”
It’s a fair question, George.
