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Osborne Defends Welfare Cuts, Pledging to Make Work Pay

April 2 (Bloomberg) -- Chancellor of the Exchequer George Osborne defended an overhaul of Britain’s welfare system, arguing that tax cuts for people on low incomes will make them better off.

In an effort that started yesterday, the government is capping benefit increases at 1 percent a year over the next three years, below the projected increase in inflation. It also introduced curbs on housing benefit, including a reduction in payments for people in rented housing who have bedrooms that aren’t being used. Church leaders described the plans as “unjust” over the Easter weekend.

“We’re trying to make the system fair on people like you, who get up, go to work, and expect your taxes to be spent wisely,” Osborne said in a speech today to supermarket workers in Sittingbourne, southeast of London. “And we’re trying to restore hope in those communities who have been let down by generations of politicians by getting them back into work”

The Conservative-led coalition headed by Prime Minister David Cameron is looking to trim welfare costs to help narrow the budget deficit while winning support from voters who resent the scale of benefit payments, even as the economy stagnates. The opposition Labour Party attacked the plans, which are coming into effect at the same time as the government lowers the top income-tax rate on earnings of more than 150,000 pounds ($228,000) a year to 45 percent from 50 percent.

‘Economic Failure’

“George Osborne needs to explain how it can be fair to give a 3 billion-pound tax cut to the very richest, while millions of working families on middle and low incomes pay the price for his economic failure,” said Chris Leslie, a lawmaker who speaks for Labour on economic affairs.

As well as the 1 percent cap, the government is also limiting overall benefits to 26,000 pounds a year for individual households and replacing disability benefits with a new payment.

A YouGov Plc poll in January found support for capping benefits at 26,000 pounds was 77 percent of those surveyed, compared with 11 percent against. A separate poll conducted by YouGov for the Trades Union Congress showed that voters believe that 27 percent of the welfare budget is claimed fraudulently, while the government estimates it is 0.7 percent. Cameron announced plans last week to curb access to welfare, housing and free health care for immigrants.

Osborne is looking for savings in areas that are hard to cut. While about a third of government spending goes on welfare, most of that is used to pay state pensions for the elderly. Jobless benefits account for about 2.6 percent of all expenditure, while support for those in work accounts for about 20 percent, according to the Institute for Fiscal Studies research group.

Osborne highlighted the 1,335-pound increase to 9,440 pounds this year in the allowance a person can earn tax-free, saving 24 million taxpayers more than 260 pounds a year. The chancellor has also frozen local taxes and fuel duty.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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