By Guest Contributor
–Cathy Corrie is a researcher at the independent think tank Reform. The opinions expressed are her own.–
So can these new measures “fix the roof” for the chancellor? The cap on AME spending is undoubtedly a step in the right direction. Yet today he confirmed that the state pension will be excluded. This means that almost half of all UK benefit spending will remain outside the cap. The AME cap will be key to opening up a debate about the cost of welfare that many politicians have been reluctant to engage with, but the exclusion of the state pension, much like the refusal to expose NHS spending to the pressure of budget cuts, is symptomatic of a broader failure to address entitlement reform.
Similarly the new fiscal mandate to be announced in the charter this autumn, likely to require budget surplus by the end of the next parliament, is a sound ambition. Yet fiscal rules have already been tried and failed on more than one occasion in recent years. Rules have failed to guide UK politicians to sustainable spending in the good years and they have been abandoned in crisis conditions because to have obeyed them would have imposed too great a cost on the economy. As Reform has argued this week, expanding the role of the OBR to take on greater responsibility for the management of fiscal policy could offer a more flexible and enduring solution.
The chancellor’s ambition to bolster the public finances in the good years so that it can weather the storms of the bad years is critical. As the green shoots of growth begin to appear, Osborne has resisted the temptation to ease fiscal discipline this budget. However delivering this in practice is a tall order. Getting to grips with entitlement reform means the current design of the AME cap announced today must only be the beginning. The fiscal mandate this autumn is an opportunity for game-changing reform, but the UK will need more than a fiscal rule to meet the chancellor’s big ambitions.