From the TUC

Annually Managed Expenditure: a bang or a whimper?

20 Mar 2013, by in Society & Welfare

One of the more opaque passages in George Osborne’s speech was addressed to Annually Managed Expenditure. After a reference to “tackling the growth of spending of welfare budgets” he added:

We will now introduce a new limit on a significant proportion of Annually Managed Expenditure. It will be set out in a way that allows the automatic stabilisers to operate – but will bring real control to areas of public spending that had been out of control.

What does this mean? Government spending is divided into two types: Departmental Expenditure Limits (DEL) are fixed budgets covering several years and Annually Managed Expenditure (AME) is made up of items that can’t be planned ahead in this way.

By far the biggest item of AME expenditure is the social security budget. This is reasonable – we don’t know how many disabled or unemployed people there are going to be in two years’ time, for instance – but the Treasury has never liked it.

The Budget Report has a paragraph that sheds a little light on the Chancellor’s obscure declaration:

Budget 2013 announces that the Government will strengthen the spending framework by introducing a firm limit on a significant proportion of AME, including areas of welfare expenditure. This will be designed in a way that allows the automatic stabilisers to operate to support the economy.

What could they mean? Well, simply applying a cash limit to benefit budgets and waiting for them to run out half way through the year isn’t very likely. It is more likely that the government wants to stop benefit increases being automatically linked to inflation even with a 1 per cent limit and instead make decisions about benefit rates subject to the spending negotiations within government.

But it would be difficult to do this in a way that would affect a large proportion of benefit spending, which is what Mr Osborne hinted. First of all there’s his commitment to maintaining the automatic stabilisers. The point about the automatic stabilisers is that they are automatic – i.e. not planned: as times get tougher they expand automatically.

If we exclude benefits for unemployed people and other benefits that are affected by the economic cycle, the obvious large contender for control would be Retirement Pension. This would be incredibly brave, but the government has shown no inclination to ‘control spending’ on senior citizens. (Quite right too, an instance where political expediency and ethics point in the same direction.) 

This is not the first time the Treasury has tried to do something about controlling AME expenditure. In the 2011 Budget the Chancellor announced that he was “considering options for strengthening control over AME by increasing the amount of spending that is managed within fixed budgets. This will improve incentives to manage AME, in particular social security spending which is the most significant component. Further detail will be set out by the summer.” (Hat Tip: @ianmulheirn)

In this case summer never came, though the Treasury did eventually announce stronger processes for monitoring and managing social security spending, with increases requiring “Treasury approval, and … a discussion of what steps can be taken to offset these increases.”

The Government plainly wants to hold back social security spending, probably doing something further about cost-of-living increases. They’ve already achieved substantial cuts by this approach, for comparatively little political pain, so this may well seem like a great idea to them. The difficulty is that the two main areas of social security spending that could yield substantial savings from this sort of control are likely to be ruled out.

The Chancellor promised more detail of his plans in the Spending Review, but I’m not holding my breath.

4 Responses to Annually Managed Expenditure: a bang or a whimper?

  1. New limits on welfare hidden in the budget | A Latent Existence
    Mar 21st 2013, 8:40 am

    […]  Touch Stone Blog: Annually Managed Expenditure: a bang or a whimper? […]

  2. What does the Budget tell us about the Chancellor’s economic approach? | ToUChstone blog: A public policy blog from the TUC
    Mar 21st 2013, 1:04 pm

    […] proposal to cap Annual Managed Expenditure may have been around for a while, but is deeply worrying. While most of this budget is accounted for by pensions, it is more likely […]

  3. Paul Spicker
    Mar 21st 2013, 8:24 pm

    Can we be sure that pensions are not being capped? DWP benefits for pensioners took up over 41% of AME at the last count – £104.1bn out of £251.5 billion. Nearly all the projected increase in benefit expenditure is attributable to pensioners, rather than to people of working age – and the commitment to maintain the ‘automatic stabilisers’, as you point out, should protect JSA. In the same speech, the Chancellor also announced a flat rate pension to replace the entitlement-driven S2P. We have then both a signalled intention and the mechanism to achieve it announced in the same Budget speech. While it’s true that capping pensions would indeed be ‘courageous’, the obscurity of Osborne’s language conceals the effect – and none of this will apply until after the next election.

  4. Peter Hockley
    Mar 21st 2013, 10:48 pm

    You’re fucked if you are on benefits! is the shorthand for this statement.