Nick Clegg: even more cuts are coming

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The Deputy Prime Minister said that Britain’s £200 billion social security system will eventually have to be rethought in order to make it sustainable.

Mr Clegg’s comments come before George Osborne, the Chancellor, sets out £11.5 billion of cuts in Whitehall departments’ budgets in 2015/16.

Mr Osborne’s Spending Review deals only with the part of the Government’s £720 billion annual budget that covers departmental spending, known as DEL.

The other half of the budget, which covers spending on welfare and pensions, is not affected, although Mr Osborne will unveil more details of his plans to cap some parts of that spending in the long term.

State pensions and benefits paid to pensioners cost around £90 billion a year, while welfare payments to working-age people, the disabled and housing benefit cost roughly another £90 billion.

Economists say that an aging population will mean that the cost of age-related pensions and benefits will inevitably rise over the coming years.

The Coalition parties have been unable to agree on cuts to the social security budget in today’s spending round, but Mr Clegg insisted that such cuts are inevitable.

The Deputy Prime Minister said that it is “unrealistic” to think that the huge cost of social security will not have to be addressed in the future.

Both Labour and the Conservatives have discussed some cuts in pension-related spending. Labour has pledged to cut winter fuel payments from better-off pensioners, and both big parties have hinted at restricting pension entitlements.

In an interview with the Lib Dem Voice website, Mr Clegg said more social security cuts will have to come eventually.

“All I’m saying is that given that of the £700bn that we spend as a nation on public spending, about £200bn of that is welfare and pensions,” he said. “The idea — and even the Labour Party is now coming round to this view — that you can just say you’re never going to look at that £200bn in the round seems to me to be unrealistic, but it needs to be done in the fairest possible way.”

The eventual need for cuts in social security has been set out by Policy Exchange, a think-tank with links to the Conservatives.

In a new report, the group calculated that unchecked, the cost of the basic state pension will rise steadily over the next 50 years as the proportion of the population aged 65 and over rises from around 17 per cent today to roughly 26 per cent in 2061.

Funding pensions for the increasing number of older people in the UK will cost an additional £40 billion a year, Policy Exchange estimates.

Meeting that cost would require spending cuts almost four times the size of those being set out by Mr Osborne this week, or major tax rises.

To avoid those actions, Policy Exchange suggested that Mr Osborne includes state pensions in his spending cap. However, that could mean cutting the value of future pensions, a politically controversial choice.