Party sources moved to clarify the "tough" decisions on spending Labour is drawing up after Ed Balls appeared to signal a major change of tack by saying pensions would be included in the cap.
The remarks by the shadow chancellor on the Sunday Politics on BBC1 prompted Matt Hancock, the business minister and former chief of staff to George Osborne, to tweet that Balls had made an "amazing" announcement that Labour would "cap pensions of people who have worked hard".
Balls insisted that Labour was not planning any cuts to the state pension because the party remained committed to the pension "triple lock". This says that the state pension will rise by the highest of either average UK earnings, the rise in CPI inflation or a standard rise of 2.5%.
The shadow chancellor tweeted: "We committed to triple-lock on state pension – got to monitor long-term pension spend – Tory reaction very rattled."
Balls sparked the row after he highlighted the depth of the change in Labour thinking on spending when he told the Sunday Politics on BBC1 that pensions would be included in the Labour cap. He told the Sunday Politics: "As for pensioners I think this is a real question. George Osborne is going to announce his cap in two weeks time. I don't know whether he will exclude pension spending or include it. At the moment our plan is to include it."
Balls believed that by describing the state pension earlier in his BBC interview as "foundational" he had made clear that it would effectively remain untouched even though it would be included in the cap. But he tweeted that he supported the pension "triple lock" as the Tories accused him of mounting an attack on pensioners.
Labour sources said that Balls had in mind pension spending, such as the winter fuel payments, rather than the state pension. But he has no plans to target free bus passes for pensioners and free television licences for those aged over 75.
The main Labour focus on pensioners will involve raising the retirement age. The party supports government plans to raise the pension age to 66 by 2020 and to 67 by 2028.
But in his speech outlining the three year welfare cap last week, Ed Miliband made clear that a future Labour government could move more quickly. He said: "The way to make this sustainable is to ensure that we increase the number of people in the working population supporting our elderly. And therefore to show a willingness to adjust the retirement age. Of course, there needs to be proper notice, but as people live longer, the age at which people retire will have to increase."
Party sources also said a future Labour government would try and shift the emphasis of housing spending from housing benefit to building more homes. In his speech Miliband said that for every £100 spent on housing thirty years ago, £80 was invested in building and £20 on housing benefit. Today, £5 of every £100 is spent on house building while £95 goes on housing benefit.
The three-year Labour cap on welfare would apply to "structural" spending not linked to the fluctuating economic cycle. The largest part of welfare spending in the so called "structural" part of government spending, known as annually managed expenditure (AME), are pensions.
The shadow chancellor said pensions would be included in the cap because "all welfare spending" is being examined. "Personally, I actually think it's important to look across the whole welfare state to say what are the drivers of expenditure," he said. "I think many people who are watching your programme would not realise that actually today the clear large bulk, the majority of most welfare spending is in fact going to people over 60. That's the truth and we should look across the piece."
Labour sources said it was correct to say that most pension spending was structural and so it would be included in the three-year cap. But this would not lead to a great deal of change in light of the "triple lock" for pensions.
One senior source said: "Pension spending is technically structural because it does not go up with the economic cycle. But it is also structural spending that is controlled by the triple lock which means the room for manoeuvre is limited. Pensions should be included in the cap but it is a pretty immovable part of the cap."
Labour's decision to impose a cap on welfare spending follows the announcement by the treasury at the time of the budget that it would seek to impose a cap on the structural AME. But the treasury made clear in March that it remained committed to the pension "triple lock".
Balls said that Labour was having to take tough decisions in light of the poor performance of the economy. He said: "People know that because the inheritance is going to be much tougher than any of us wanted, because the government's plan has failed, Labour's saying that we're going to have to face up to that tough inheritance and make very difficult decisions.
"We're saying loud and clear to anybody out there who thinks a Labour government next time round will be like the last Labour government, able to say we're going to be increasing spending; spending will be falling for departments – we'll have to make tough decisions, we'll have to be rigorous about priorities, it's going to be very hard, but we will do things in a more balanced and a fairer way."
A Labour spokesman said: "Labour supports the 'triple lock' on the state pension. But as Ed Balls said it would be perverse to exclude overall spending on pensioners and the impact of an ageing society from any sensible and long-term fiscal plan to monitor and control structural social security spending.
"That's why we have supported increases in the retirement age as people live longer and why we have also said we would not pay the winter allowance to the richest 5% of pensioners.
"We will look at the details of the government's cap when it is announced in the spending review as we develop the details of our own."
Original Article
Source: guardian.co.uk
Author: Nicholas Watt
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