Work and Pensions Secretary Iain Duncan Smith has said this week that it is unfair for benefits to rise in tandem with inflation when private sector pay lags behind, sparking a row with Labour.
Mr Duncan Smith pointed out that jobless benefits have risen 20 per cent in the last five years, compared with a 12 per cent rise in private sector pay and said that benefits should no longer automatically keep pace with inflation.
His speech stirred up a row in Parliament just days before a key debate on the matter, which will be held in the Commons on Tuesday, when the Government is determined to break the link between benefits rises and inflation.
It proposes instead that there will be a three-year cap of 1 per cent, which is below the expected rise in the cost of living, on most working-age benefits and tax credits for three years from 2013/14. While child benefit, housing benefit and universal credit will be capped for two years from 2014/15.
However, the Labour party, which will fight the 1 per cent cap, says that Jobseekers Allowance has risen by 32 per cent over the past ten years whereas wages have gone up by 36 per cent.
Mr Duncan Smith argued that benefit increases had cost the taxpayer £6.3bn since the start of the 2008 recession and that, under the former Labour government’s welfare state, thousands of families had been pushed into dependency as it made no sense to give up the certainty of a benefit payment in order to go back to work.
However, Shadow Work and Pensions Secretary, Liam Byrne, argued that the cuts to tax credits, which will affect ordinary working families, will be what funds the savings, to the tune of around £4bn.
As an economist at Milsted Langdon, Kevin Butler, is able to share his in-depth research and expert views on a wide range of economic and financial topics.