GEORGE OSBORNE yesterday raised a question mark over the future of universal benefits to pensioners and parents as he argued that Britain’s biggest squeeze on public spending since the war would be “fundamentally progressive and fair”.
The coalition government is reconsidering highly sensitive political commitments on benefits to the middle classes as the chancellor and Nick Clegg, deputy prime minister, make a case for protecting the poorest in the spending review.
Mr Osborne expressed his backing in principle for sweeping reforms of the benefits system, but he has demanded net savings of at least £10 billion from Iain Duncan Smith, the work and pensions secretary. The requirement for tight savings is turning the spotlight on to winter fuel payments and child benefit – universal payments that David Cameron gave a totemic pledge to protect in a live TV election debate.
“We are engaged as a government in a collective effort to get this right, to both make savings to the welfare bill and to create a simpler, fairer welfare system that, above all, gets people into work,” Mr Osborne said.
One of the options being examined is tightening the age rules for the winter fuel payments or child benefit – a move that would make savings while preserving the universal nature of the benefits. The Liberal Democrats proposed raising the age of eligibility for winter fuel payments from 60 to 65 in their manifesto, saving £300 million.
Another problem facing the chancellor is that £600 million of the £2.7 billion winter fuel payments offered by Labour was a one-off payment. In order to match the bonus in future years – which amounts to £50 for all pensioners and £100 for the over-80s – the chancellor would need either to raise borrowing or fund it through other savings.
When challenged on whether he would guarantee winter fuel payments would be no less than the £2.7 billion paid out by Labour, Mr Osborne said: “The commitment on the winter fuel payments is there in the coalition agreement.”
Mr Clegg backed Mr Duncan Smith’s attempts to overhaul and simplify the benefits system, saying that any related costs should come from paring back some universal benefits.
Without tackling the spending on the middle classes, analysts argue, Mr Clegg and Mr Osborne will be unable to claim the changes have been progressive or fair. “It’s hard to see how the coalition is spending wisely or fairly if it isn’t prepared to cut rich people’s benefits before taking cash from those with least,” said Ian Mulheirn of the Social Market Foundation.
Alistair Darling, shadow chancellor, said Mr Osborne was merely using talk of fairness as “a disguise”. “Slowly but surely this government is being defined by cuts. That is the beginning of the end of everything,” he said.
Mr Osborne used a speech in the City yesterday to give a cautiously optimistic review of the economy, while concurring with the Bank of England in seeing a “choppy” recovery ahead.
“To expect a smoother ride after the biggest economic crisis of our lifetimes, and with the debt problems this government has inherited, would be asking too much,” he said.
His speech came as Moody’s reported that Britain is on course to hold on to its top triple-A credit rating, saying the coalition’s plans for deeper spending cuts and further tax rises are helping to strengthen public finances. – (Copyright The Financial Times Limited 2010)