If the story is right, this is great news.
There are several other encouraging things in the story, and it looks like some good things are happening at the Treasury more generally.
So called "tax credits" will come under scrutiny. The "Child Tax Credit" (CTC) is not a tax credit at all, because you don't have to be working to claim it. It is really just a second, much more generous, version of Child Benefit. It consumes the majority of the £29 billion spent on tax credits. Roughly a third of all tax credit spending goes to people on above average incomes. In fairness, Labour had been cutting back its generosity since its introduction, cutting the value of the family element by a fifth in real terms.
But it's worth remembering why Labour introduced CTC in the first place: in order to hit their Child Poverty target. I think this is a flawed target, which pushed Labour towards papering over the symptoms of poverty, rather than tackling its real causes. The coalition is committed to the same inadequate target, but I hope eventually it will be abandoned by all parties.
Nonetheless, the tax credit system is a total mess. Remember all those stories about people having their tax credits clawed back a few years ago? Labour "fixed" that problem by introducing a whopping £25,000 "disregard", meaning you can earn an extra 25 k and still get the same tax credit, which is nuts.
Child Benefit may be means tested. Probably the most newest element in the Indie's story is the suggestion that Child Benefit may be means tested. This would open up the potential for meaningful savings. Tapering away the family element of the Tax Credit after the exhaustion of the child element could save £0.9 billion. Doing the same thing to Child Benefit too would take the savings to £6.5 billion, which is nearly 1% of total government spending. I think this is a good idea, although means testing does potentially have an effect on financial incentives to work, a problem which needs to be addressed more broadly.
A benefit freeze may be considered. According to Grice, "The review is expected to consider the level and scope of benefits for the jobless, sick and disabled – including the option of freezing them temporarily." To make real progress on reducing the size of the social security bill, it will probably be necessary to freeze the value of some benefits, as well as reducing the number of people claiming them. Holding benefits constant for three years would save £15 billion, or if the state pension were exempted, about £10 billion - more than 1% of total government spending.
In contrast a 5% cut in the number of people claiming saves the following: Disability Living Allowance (£562m) Carer's Allowance (£70m) Attendance Allowance (£248m) Jobseeker's Allowance (£224m) Incapacity Benefit + ESA (£404m) Income Support (£438m) Council Tax Benefit (£223m) Housing Benefit (£806m) Child Benefit (£518.80) Tax Credits (£976m). In total, a 5% drop in the numbers claiming all these benefits would save "just" £4.5 billion. This makes me think some combination of freezes and reduced numbers of claims will be needed to make a dent in our £150 billion deficit
The Treasury are stating to explain the real origins of our deficit. Many people still think the cause of the deficit is the recession. In reality, the last government had planned explosive growth in public spending, which they didn't rethink, despite falling tax revenues. There's a graph in the Treasury's document from yesterday on the spending review framework which tells the story well, showing how spending rocketed far more than tax revenues fell: