Freezing benefits is bad for the poor and for the economy

Osborne's plan to break the link with inflation is neither economically wise nor socially just.

With his deficit reduction plan increasingly off-track, George Osborne is reportedly considering breaking the link between benefit levels and inflation and freezing payments to claimants. It's a move the government discussed last year, although it ended up raising benefits by 5.2%, in line with September inflation (the figures traditionally used to calculate payments). But in his speech on welfare earlier this year, Cameron suggested that benefits could be linked to wages instead. He said:

This year we increased benefits by 5.2 per cent.

That was in line with the inflation rate last September.

But it was almost twice as much as the average wage increase.

Given that so many working people are struggling to make ends meet we have to ask whether this is the right approach.

It might be better to link benefits to prices unless wages have slowed – in which case they could be linked to wages.

Although pensions, which go up annually by either inflation, earnings, or 2.5% (whichever is higher), would be exempt from the move, it's thought that 90% of benefits would be frozen. Having already cut welfare payments by uprating benefits in line with the Consumer Price Index rather than the (generally higher) Retail Price Index (see James Plunkett's Staggers blog on the coalition's "£11bn stealth cut"), Osborne is preparing to squeeze the poor again. And, while the move would have saved an estimated £14bn since 2008/09, it makes little economic sense.

At a time of high unemployment (forecasters expect the jobless total to rise to 8.7% next year), freezing benefits will only further depress consumer demand. Unlike the rich, most benefit claimants can't afford to save, so they spend whatever they receive and stimulate growth as a result. In this regard, it's heartening to learn that, according to the BBC's Nick Robinson, Iain Duncan Smith believes the policy would be "bad economics" since the poor "spend not save". There's also, of course, a moral objection. Cutting support to the poorest means even more families having to choose between heating and eating.

But the poor, to their cost, can't employ armies of lobbyists to plead their case. There is no easier target for a right-wing government - and no less deserving one.

George Osborne is considering a two-year freeze on most benefits. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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What Jeremy Corbyn gets right about the single market

Technically, you can be outside the EU but inside the single market. Philosophically, you're still in the EU. 

I’ve been trying to work out what bothers me about the response to Jeremy Corbyn’s interview on the Andrew Marr programme.

What bothers me about Corbyn’s interview is obvious: the use of the phrase “wholesale importation” to describe people coming from Eastern Europe to the United Kingdom makes them sound like boxes of sugar rather than people. Adding to that, by suggesting that this “importation” had “destroy[ed] conditions”, rather than laying the blame on Britain’s under-enforced and under-regulated labour market, his words were more appropriate to a politician who believes that immigrants are objects to be scapegoated, not people to be served. (Though perhaps that is appropriate for the leader of the Labour Party if recent history is any guide.)

But I’m bothered, too, by the reaction to another part of his interview, in which the Labour leader said that Britain must leave the single market as it leaves the European Union. The response to this, which is technically correct, has been to attack Corbyn as Liechtenstein, Switzerland, Norway and Iceland are members of the single market but not the European Union.

In my view, leaving the single market will make Britain poorer in the short and long term, will immediately render much of Labour’s 2017 manifesto moot and will, in the long run, be a far bigger victory for right-wing politics than any mere election. Corbyn’s view, that the benefits of freeing a British government from the rules of the single market will outweigh the costs, doesn’t seem very likely to me. So why do I feel so uneasy about the claim that you can be a member of the single market and not the European Union?

I think it’s because the difficult truth is that these countries are, de facto, in the European Union in any meaningful sense. By any estimation, the three pillars of Britain’s “Out” vote were, firstly, control over Britain’s borders, aka the end of the free movement of people, secondly, more money for the public realm aka £350m a week for the NHS, and thirdly control over Britain’s own laws. It’s hard to see how, if the United Kingdom continues to be subject to the free movement of people, continues to pay large sums towards the European Union, and continues to have its laws set elsewhere, we have “honoured the referendum result”.

None of which changes my view that leaving the single market would be a catastrophe for the United Kingdom. But retaining Britain’s single market membership starts with making the argument for single market membership, not hiding behind rhetorical tricks about whether or not single market membership was on the ballot last June, when it quite clearly was. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.