Clegg comes unstuck on jobs scheme

The Deputy PM struggled to deny that the jobs scheme will be paid for by the working poor.

As expected, Nick Clegg has this morning announced the government's belated response to the youth unemployment crisis. The £1bn scheme (previewed by Gavin Kelly on his New Statesman blog yesteday) will see wage subsidies worth £2,275 offered to employers to take on 160,000 18- to 24-year-olds over the next three years.

If it sounds a lot like the Future Jobs Fund (FJF) set up by Labour and scrapped by the coalition, that's because it is. There are some differences. The scheme will not operate in the public sector and it provides a smaller job subsidy - £2,25 per job rather than the £6,000 subsidy offered by the FJF. But it still represents a significant U-turn by the coalition. As Gavin wrote on his blog yesterday, the government, confronted by the scandal of one million young people out of work, has been forced to swallow its "ideological opposition to wage subsidies".

The question, for a government that refuses to spend a penny of new money, is how will it be paid for? The Treasury has briefed that the money will be found by not uprating tax credits in line with inflation, a move that would penalise low and middle income earners. Asked to confirm that this was the case on the Today programme this morning, Clegg floundered. He insisted that "this £1bn isn't paid for by one particular tax change or one particular welfare change" but refused to deny that tax credits would bear the brunt. The Deputy PM went on to restate his belief that the majority of savings should come from those with "the broadest shoulders", pointing to the bank levy, the rise in capital gains tax and the crackdown on tax loopholes. But this only begs the question: why isn't the new scheme funded through such a measure? Rather than cutting tax credits, the government could have levied a wealth tax on the asset-rich.

Sounding ever more uncomfortable, Clegg fell back on the line that the full details would be in George Osborne's autumn statement next Tuesday. But, as we have learned, when forced to choose between squeezing the rich and squeezing the poor, the Chancellor squeezes the poor. Clegg's jobs scheme will be balanced on the backs of the least well-off.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
Show Hide image

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.