Cameron plays politics with Britain's welfare system, can Labour respond with policies?

Britain's Prime Minister has just launched a headline catching speech on welfare reform driven by the need for cuts, justified in terms of fairness and the virtues of self-reliance, and aiming to cash in on prejudice. What it needs now is principled opposition.

Nick Pearce
25 June 2012

As good civil servants observing the appropriate rules, the Downing Street press office issued a copy of the prime minister’s welfare reform speech with sections marked ‘political content excised’. In truth, if they’d applied that editing principle consistently, the whole thing would have been cut. This was a speech about politics, not policy. Sometimes the Prime Minister appears in public naked, politically speaking, rather than clothed in actual government policies. This morning was one such occasion.

The speech – ostensibly about the principles underpinning welfare reform – has its origins in last year’s autumn statement, when the Chancellor admitted that he would not meet his target to eradicate the structural deficit in this parliament but would need two more years of the next parliament (2015/16 and 2016/17) to do so.

At the time few woke up to what this really meant, since the issue was overshadowed by the fact that the economy was tipping back towards recession, so the Treasury had another go at alerting people to it in last March’s budget. This time, the budget documentation spelled out more graphically that, without further welfare spending cuts, the average real reductions in departmental spending would increase from 2.3 per cent a year in the current spending review period to 3.8 per cent a year in 2015/16 and 2016/17. In order to prevent this, the Treasury argued, welfare cuts of £6.6 billion and £10.5 billion would be needed in these years respectively.

At this point, a reasoned debate could be held about whether the government should stick to its new path for fiscal consolidation, or close the spending gap with tax rises rather than spending cuts, or even argue that it is daft to try to forecast government plans this far out from the next general election, particularly given the uncertainty in the eurozone. But this is politics, not an academic debate. So the Prime Minister has decided to start framing the fiscal question as a political one: claiming that welfare cuts are good in themselves, and more specifically, questioning entitlements to benefits for working-age adults. Although dressed up as the opening salvo in a public debate about the purposes of the welfare state, his speech was in reality the staking out of a new conservative populism, one that differentiates his party sharply from its coalition partners.

As such, the first observation to make about the speech is that it renders a government spending review next year much less likely. Whitehall had been anticipating a 2013 spending review process which would set departmental budgets for 2015/16 and onwards into the middle of the next parliament. By setting out such decidedly Conservative plans for welfare cuts, the Prime Minister has made it almost impossible for the Coalition partners to agree on how to meet the trade-off between welfare and spending cuts set out in the March budget. Although Number 10 was at pains today to say that some of the ideas floated by the Prime Minister could be implemented before the general election, it is inconceivable that both parties could now sign up to a fiscal plan covering the first three years of the next parliament if these ideas were to form its basis (for no other reason than that there are simply too few Blue Dog Liberal Democrats with safe seats like David Laws to support such an obviously self-defeating strategy).

Much more likely is that they agree a one-year settlement, covering 2015/16, which is the minimum they have to do before a May 2015 election. Both parties would then be free to set out their plans for the rest of the parliament in their manifestos, which is essentially what happened in the 2010 election, as no spending review had been held then either. (To speculate further, it is possible that a one-year settlement for 2015/16 could be announced in autumn 2014, allowing the Liberal Democrats to withdraw from the coalition at that point and move to a supply and confidence arrangement for a minority Conservative government; George Osborne would then have free rein to announce an unashamedly Conservative budget in 2015).

What then of the substance of Cameron’s speech? The Prime minister confirmed that pensioner benefits would remain untouched, but this was a speech about class, not generational politics. The bulk of his proposals were addressed to the working-age poor: restricting housing benefit or access to social housing (he wasn’t clear which) for the under-25s; limiting child benefit payments to three children in a household; reducing benefit levels according to duration of claim, and so on. Despite his protestations to the contrary, there was nothing strategic or principled about any of this. It was a melange of populist initiatives, without any overarching strategy or argument either about the future pressures on the welfare state, and the priorities it should embody, or about the balance between the principles, such as need or contribution, underpinning it.

Hence the proposals for cuts were more symbolic than substantial. Limiting child benefit to three children saves £330 million in a budget of £190 billion; this is not entirely insignificant, given the fiscal position, but is hardly a fundamental reshaping of welfare provision. Similarly, only one in 20 of those in social housing is under the age of 25, and only 8 per cent of housing benefit expenditure goes on this age-group. Although the latter costs £1.8 billion a year, a large number of claimants will be young people with children, while others will come from high-risk groups like young people leaving foster care and those escaping domestic violence, as the prime minister acknowledged. His ideas for cuts were chosen not because they represent a fundamental rethinking of the welfare compact but because they play well in focus groups. To register that is to state the obvious-obvious, as it were.

Hence by far and away the biggest single item for generating savings in the Prime Minister’s list was his proposal to uprate working-age benefits by average earnings, rather than the consumer price index (CPI), when the former is lower. This is rather like the triple-lock guarantee for the basic state pension, only in reverse. Last year, it would have meant working-age benefits were uprated by only 2.5 per cent, saving £5 billion. Over the last four years, earnings growth has been lower than CPI every year, such that the cumulative growth of the former was 8.4 per cent, against 15.2 per cent for the latter. To cash that out, JobSeeker’s Allowance would now be £66.81 per week if it had been uprated by earnings, rather than £71.00. Over time, these savings get very large (even if the relative weakness of real earnings compared to prices over a sustained period of four years is rare).

Labour’s response to all this was muted, for the reason that it didn’t much fancy walking into such a clearly signposted political trap. But that has left it largely denuded of voice, moral or otherwise, in this debate. A different approach would be to start with the need for a fundamental reshaping of the welfare state and to set out alternative plans.

  • It could argue for a shift from housing benefit to spending into bricks and mortar home building by empowering local authorities to spend the available resources through ‘affordable housing grants’, as IPPR set out last week.
  • It could accept that young people who don’t go to university shouldn’t have access to lifetime social housing tenancies or even housing benefit, but make the case instead for a properly funded apprenticeship or FE college-based route into adulthood. (Why should the state subsidise young people to live away from home to study at university but not at an FE college?)
  • It could make the case for young single parents to have the guarantee of Foyer-style housing, in which they can bring up their children while attending classes to get themselves qualified.
  • And it could propose that instead of arbitrary limits to child benefit by household size, an overall freeze in child benefit levels would liberate resources for the creation of a universal childcare system, as James Purnell has argued.

Labour has been doing a lot of thinking behind the scenes on these issues, but the Prime Minister has now foreshortened the time left for internal policymaking to each of the political parties. Labour cannot put welfare reform in a box marked ‘tied up by future fiscal rules’ and leave it there for another couple of years. The debates which will frame the next general election are well underway.

Cross posted with thanks from Nick's IPPR blog

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