Wriggle room welfare – 6 AME ‘cap’ observations

The savings-hungry government has set its sights on welfare-related Annually Managed Expenditure (AME). At £183bn a year – it’s over half of all government AME spending. The state pension is the largest piece of the pie, accounting for around £80bn. Tax credits cost £25bn and housing benefit £22bn. A radical AME cap has the potential to reduce welfare spending – a point Labour accepts and supports. Following yesterday’s announcement, several observations can be made.

1). It’s a target, not a cap. The language is tough but a firm ceiling on this type of demand-led spending is probably unworkable. A target approach would see a spending limit set at the Budget. The OBR would monitor spending and issue a warning before any projected breach of the limit. But, in the event of a breach, there’s wriggle room for the government. It could find savings from elsewhere or justify overspend to parliament. That’s not the firm credit card limit suggested by the word ‘cap’.