At last, the parties get serious on spending In doing so, he has also thrown down the gauntlet to George Osborne. At his most recent Budget, the Chancellor bravely said that he would limit not just spending on public services, but also on welfare, and indeed on everything else that government spends. So-called "annually managed expenditure," or AME in the jargon, makes up half of all public spending (ie, roughly £350 billion a year). This is now the Treasury's biggest problem. In the past three years, budget cuts have seen spending on public services reduce by 8 per cent, as the Government attempts to draw in its horns. Over the same period, AME has grown by a quarter. So Mr Osborne was right to propose a cap on annually managed expenditure in future. But that cap only makes sense if spending on pensioners, including the state pension, is included, since it makes up a third of all AME and a sixth of all public spending. Really, Mr Balls is only stating the obvious when he says that future governments will have to limit spending on this part of the budget, too. But it is an obvious truth that the Government has yet to acknowledge. In fact, Mr Balls has identified a weak point in the Coalition's platform. Up till now, ministers have done all they can to promise pensioners more money. As a result, they made the great mistake of promising to increase the basic state pension at the maximum possible rate. The so-called "triple lock" will see the state pension rise in line with whichever is highest out of prices, earnings or a base rate of 2.5 per cent. This is a reckless commitment for an era of ageing populations. Conservatives should reflect that one of Margaret Thatcher's first acts at prime minister was to abolish the "triple lock" of her day, so that pensions would increase in line with prices alone. Mr Balls may claim to support the triple lock himself, but the logic of his position is that it would go if the public finances could not support it. So if Mr Osborne's next review of public spending, due on June 26, does not explain how he will make pensions more affordable in future, Mr Balls could have a claim to have a more credible position on public spending. That would be truly remarkable, given that he was one of the architects of the spending boom that presaged so many of our current problems. Still, as the Parable of the Lost Sheep tells us, heaven rejoices less in the good deeds of good people than in the one sinner that repenteth. And we should rejoice ourselves - for we might just be heading towards a future in which each of the major parties recognises that all areas of public spending need attention. Indeed, it may be happening in a piecemeal way, but the role of the state is gradually becoming more sensible as well as more affordable. From higher education to pensioner benefits and now to legal aid, government spending is being better targeted on those who actually need it. These are historic moments - for they give a sense that the UK might actually respond to the crisis in the right way, so that it emerges from the recession in a stronger position than when it entered. Andrew Haldenby is director of the independent think tank Reform. Its report 'Seismic shifts in the welfare state" is available at www.reform.co.uk