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Will Clegg cave in on freezing benefits?

Lib Dem leader may agree to Osborne's benefits freeze in exchange for a wealth tax.

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

Last year it was the Liberal Democrats, along with Iain Duncan Smith, who vetoed George Osborne's plan to freeze benefits on the grounds that the poorest should not be squeezed even more. Now, with his deficit reduction programme increasingly off track, the Chancellor has come back for a second try. As I wrote yesterday, Osborne is reportedly considering freezing most benefits for two years and then linking them to wages, rather than prices (the former are expected to rise more slowly than the latter, a sure sign of a depressed economy). The plan would hit the poorest hardest and further depress growth (the poor spend, rather than save, what little they receive) but Osborne, a man with a deficit target to meet, will likely wave away such quibbles.

And it looks as if he may get his way. Today's Sun reports a source close to Clegg as saying, "This is a time of incredible economic challenges and we have to look at all the options available." It's the sort of story perfectly timed to unsettle the Lib Dem faithful as they gather  for their annual conference in Brighton this weekend. The party, most of whose activists remain solidly social democratic, has already accepted £18bn of welfare cuts (Osborne is attempting to secure a further £10bn), will it really acquiesce to yet another raid on the poorest? Provided certain conditions are met, the answer is yes. Clegg has openly said that he is willing to agree to further welfare cuts in exchange for some form of wealth tax.

He told the Guardian last month: "The blunt truth is that we will need to find further savings in welfare. It constitutes close to a third of total government expenditure ... Welfare reform does have a continuing role. But that has to be done in a way which starts at the top rather than starts at the bottom."

But if Clegg does want to strike a grand bargain with Osborne he had better make sure it is one worthy of the name. Before the 50p tax rate was abolished, we were told that the Lib Dems would only accept such a move in return for the introduction of a "mansion tax". Yet the rate was scrapped and all Clegg's party received in return was a higher rate of stamp duty on £2m properties and some token action on tax avoidance. In the eyes of the voters, the Lib Dems were complicit in a giveaway to the richest. If Clegg is to avoid relinquishing any more credibility, he must not repeat this error.