Osborne plans another raid on child benefit

Child benefit set to be abolished for over-16s as welfare is squeezed again.

Despite the trouble it caused the coalition the first time round, it looks like George Osborne is planning another raid on child benefit. Everything we've heard suggests that the benefit will be abolished for all children over 16 - a political gift for Labour. Unlike the earlier cuts, this will hit families across the income scale, not least the poorest, to whom child benefit is disproportionately valuable. And Cameron's earlier defence - that it is wrong to tax the poor to fund middle-class welfare - will be irrelevant in this case.

Conversely, it appears that the coalition is now not planning to cut the Winter Fuel Allowance, something that will make it harder to justify the child benefit cuts. An all-out assault on universal benefits would at least be intellectually coherent. Meanwhile, a story in today's FT is very revealing about Osborne's overall strategy: to squeeze welfare in order to limit departmental cuts.

It notes:

Osborne has even been trying to match Labour's plan to cut unprotected departmental spending by 20 per cent, compared with his original plan of 25 per cent. His aides admit this is "optimistic", while Labour scoffs, saying it could only be achieved by financial sophistry on a grand scale, including changing baselines and adding contingency reserves.

There's no chance of Osborne achieving average cuts of 20 per cent but don't be surprised if he still trumps lower-than-expected cuts in defence, education and other areas.

As for Labour, we'll learn more about their defict strategy - likely to involve something close to a 50:50 split between spending cuts and tax rises - when Alan Johnson gives his first speech as shadow chancellor in the City at around 11am today. Check back for more analysis and reaction soon after he does.

George Eaton is political editor of the New Statesman.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.