Osborne squeezes benefits again

Benefits will not be raised in line with September inflation in order to cut fuel duty.

It is indicative of George Osborne's political beliefs that when forced to choose between squeezing the rich and squeezing the poor, he squeezes the poor. 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"), a move that cost families hundreds of pounds a year, he has changed the rules again.

I speculated last month that higher-than-expected inflation meant benefit payments would not be uprated in line with September's figures (when CPI inflation stood at 5.2 per cent) but a lower set of figures. Today's Times (£) confirms that Osborne is planning to do just this. Rather than increasing benefits in line with September inflation (as is traditional), he will increase them in line with a six month average (currently 4.5 per cent). Osborne has wisely exempted pensioners' benefits from the move - no government can afford to alienate the grey vote - but the policy change will still save the government around £1bn a year.

The money will reportedly be used to scrap the planned 3p rise in fuel duty this January, a populist measure that makes a mockery of the government's claim to be the "greenest ever". Moreover, it will do nothing to help the poorest, many of whom cannot afford to use a car. It is they who will suffer most from a real-terms cut in benefits. Those receiving disability benefits, carer's allowance, income support and jobseeker's allowance, will lose £50 to £100 a year. As Alison Graham, the chief executive of the Child Poverty Action Group, points out:

Increasing benefits below inflation will mean even more poor families having to choose between heating and eating. The costs of heating and electricity have gone up well ahead of inflation, with electricity up by around 10 per cent and gas up by around 15 per cent, so the Government should consider above-inflation increases to protect the health and well-being of children.

With unemployment at a 17-year high, the government should be increasing, not reducing benefits, a policy for which there is an economic as well as a moral case. Low earners spend a greater proportion of their disposable income than high earners and stimulate growth as a result. Once again, Osborne has adopted a policy that is neither economically wise nor socially just.

George Eaton is political editor of the New Statesman.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.