Budget 2014: Welfare cap set at £119.5 billion

In his 2014 budget, chancellor George Osborne said the government's cap on welfare spending would be £119.5 billion in 2015/16 and would rise in line with inflation for the next five years.

The figure is 5.6% higher than the total of £113.1 billion the government is expected to spend on welfare payments during the 2014/15 financial year, beginning in April.

The above inflation increase for the 2015/16 welfare cap must first be approved by MPs after a vote next week; but it will then rise to £122 billion in 2016/17, before increasing to £124.6 billion and £126.7 billion in the years that follow.

The cap applies to benefits including child benefit, statutory maternity pay, incapacity benefits, universal credit and pension credits.

It does not include Jobseeker's Allowance, Housing Benefit linked to Jobseeker's allowance, or the State Pension (basic and additional).

But the government also said it will increase the earnings limit in Carer's Allowance (known as the Carer's Allowance income disregard) to £102 a week from May 2014.

Lorraine Podmore, welfare benefits specialist at financial advisers Frenkel Topping, said: "Despite being billed as a rise, what is in fact an additional cap on benefits is disastrous given the recent changes to welfare reform. Very much a freeze in real terms, it will lower living standards of those in receipt of benefits relative to the rest of the population.
"The impact will be felt keenly by all who claim benefits, whether in work or not. Many of those who claim Jobseeker's Allowance, for example, are in part-time work of less than 16 hours per week, already struggling to pay the bills.
"Additionally, a number of those who claim Employment Support Allowance have been rehabilitated after serious illness and disability, their need for financial support greater than ever as they prepare for the world of work by attending interviews, workshops and adapt to life.
"Far from helping those who really need it – such as those in low-income jobs, rehabilitated people seeking work after illness and disability, and those unable to work this budget leaves already vulnerable people even more exposed."

Announcing the cap, the chancellor said: "Britain should always be proud of having a welfare system that helps those most in need. But never again should we allow its costs to spiral out of control and its incentives to become so distorted that it pays not to work."

He has also introduced a new rule that the limit on total welfare spending will be set by the Chancellor at the beginning of each parliament. If the limit is exceeded, the Chancellor will be held to account and MPs will be able to vote on any action deemed necessary.

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