Osborne Battle Over £10 Billion Welfare Cut

Plans by the chancellor to take £10 billion a year, or almost £1 in £20, out of the welfare budget are being openly resisted by the department for work and pensions in the first sign of government infighting over the coming spending round.

Chancellor of the Exchequer George Osborne holds Disraeli's original budget box as he leaves 11 Downing Street for Parliament.
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Chancellor of the Exchequer George Osborne holds Disraeli's original budget box as he leaves 11 Downing Street for Parliament.

made clear in last week’s Budget that further welfare savings were crucial if other departments were to be spared even deeper cuts after 2015. He told MPs: “If in the next spending review we maintain the same rate of reductions in departmental spending as we have done in this review, we would need to make savings in welfare of £10 billion by 2016”.

But, speaking to the Financial Times, Chris Grayling, employment minister, said: “What the chancellor did in his budget was set out a framework for government as a whole and that £10 billion is a figure that applies across government. He expressed the desire that we make further savings in welfare as part of that, but... we haven’t begun that kind of discussion yet.”

The saving would come on top of the £18 billion-a-year cut to benefits and tax credits already planned by the coalition and due to be implemented by 2014-15. The proposed new cut represents almost £1 in every £20 from the planned social security budget in 2014-15.

Asked whether the department for work and pensions was at one with the Treasury, Grayling said: “I’m sure we will be deeply unified in what we decide.”

An aide to Iain Duncan Smith, work and pensions secretary, added: “From our perspective, we wouldn’t see this as simply £10 billion off the DWP budget, and I’m pretty sure we’ll be making that point as and when we sit down with the Treasury.”

The government is planning further tight curbs on public spending in 2015-16 and 2016-17 in the next spending review, likely to be negotiated later this year.

All departments except health and international development are already taking an average real-terms cut of 2.3 per cent a year between 2011 and 2015. Without the additional welfare savings, departmental spending would have to be cut by an ­average of 3.8 per cent in real terms in 2015-2016 and 2016-2017, Osborne made clear last week.

“We are now putting real effort into transforming the lives of some of the 5 million people on out-of-work benefits,” Grayling said. “If we are successful in getting people off benefits and into work, that will generate a saving for the nation and that’s not accounted for at this moment in time.”

He acknowledged Osborne had “clearly indicated” that he would like the additional savings from welfare but, he said Budget documents showed that “welfare is not carrying that sole burden”.

It is not the first time that the need for upfront investment in the welfare shake-up has led to conflict between Osborne and Duncan Smith. Three months after the coalition came to power in 2010, the FT reported that the chancellor’s demand for £5 of savings for every £1 spent on overhauling the system had led to a row between the two ministers.