Welfare debate only just beginning

Welfare debate only just beginning

7th January 2014

As New Year messages go it was pretty bleak. As Britain battled the back to work blues we awoke to news that 2014 will be a year of ‘hard truths’.  On a factory floor in Birmingham, the kind of blue collar backdrop we should get used to between now and the election, the Chancellor argued that the economic job isn’t even ‘half done’ and warned against a return to the bad old habits of Britain living beyond its means. If an extra £25 billion is to be found after the election, he warned, then almost half will have to come from the welfare budget.

Like him or loathe him, George Osborne once again proved a master at defining the terms and tone of the political debate. Within only a few hours on the first Monday of January, Labour and the Lib Dems were on the back foot. What began as a warning about hard truths ended as a debate about welfare cuts. Ed Balls and Nick Clegg scrambled together responses as the Chancellor travelled back from Birmingham looking on, no doubt delighted.

Add that to David Cameron’s pledge over the weekend to retain the state pension’s ‘triple lock’ and Downing Street’s indication yesterday that he remains minded to protect universal benefits for older people, and one has to start looking, yet again, at the working-age welfare and disability budgets.

To recap: since 2010 the coalition has committed to reducing the working-age welfare bill with savings of £21 billion whilst social security spending on pensioners has largely been untouched. Measures have included: freezing at 1 per cent the annual up-rating of certain benefits; the benefit cap; changes to working tax credits and housing benefit as well as switching from RPI to CPI.

The current working-age welfare bill lands at £96 billion, with tax credits (approx £28 billion) housing benefit (approx £18 billon) and out-of-work benefits (approx £18 billion) the dominant forces.

Many of these decisions, led from the Treasury it seems, have been controversial amongst the commentariat but popular with the public. And at different stages tensions have been revealed across the Cabinet table and even within political parties. But considering the task and pressure, there remains remarkable Coalition unity as ministers defend their welfare cuts record.

But one gets the sense that future welfare reform will require walking an even narrower tightrope. Already in today’s Times we read that some Conservatives fear the impact of more working-age cuts on the poorest people in our society – the view that you can’t take much more away without inflicting real damage. Having spent time in some of the most deprived communities recently, I think that has to be a major concern for those who believe welfare reform should primarily be about saving lives not saving money. It is getting people into work and moving them out of dependency which saves money, whereas salami slicing budgets can simply move spending pressures elsewhere across Whitehall.

What’s also clear is that within the Conservative party and the Coalition, there is unease about the Prime Minister’s apparent ongoing refusal to consider cutting benefits to wealthier pensioners.  The unease is partly about practicality – reducing these entitlements could generate some savings – but it seems this unease is also about principle – many low-income working families need to believe the ‘all in it together’ and ‘broadest shoulders’ lines when they hear them.

It’s a debate that the Conservative party will have to thrash out behind closed doors. But for the Liberal Democrats, who have already rejected the call for more working-age welfare cuts without older age spending reduced too, it presents an intriguing middle ground scenario they can take into the general election and perhaps to the Coalition negotiating table beyond that.

Growth aside, George Osborne and David Cameron have drawn the battle lines: £25 billion to find – including £12 billion from welfare. This surely means another up-rating freeze, more means-testing, limiting benefits to a certain number of children and changing the housing benefit offer to young people. So after three years of wrangling, one gets the sense the welfare debate is actually only just beginning.