Why aren't we talking about the "disability tax"?

The Chancellor presented some pretty unconvincing reasoning in the Autumn Statement.

As Jonathan Portes writes, the Chancellor's explanation for using the Autumn statement to cut spending in real-terms (which includes the "mummy tax", as well what we might call the "poverty tax", "disability tax", "unemployment tax" and "civil servant tax") doesn't stand up.

The Chancellor said:

With pay restraint in businesses and government, average earnings have risen by around 10% since 2007. Out of work benefits have gone up by around 20%. That’s not fair to working people who pay the taxes that fund them.

Portes responds:

The numbers are correct: but they are highly selective… The value of out of work benefits relative to average earnings (and more broadly the incomes of those in work) has fallen steadily over the past three decades, until the recent slight uptick resulting from the recession…

Unless we are stuck in permanent depression, even a modest recovery will in time lead to earnings rising significantly faster than prices, and the relative value of out of work benefits will decline again. No policy action is required to ensure this (although economic recovery would help!).

The Chancellor was also incredibly sneaky in conflating out-of-work benefits with the other, in-work benefits, which he is also cutting, including local housing allowances – a key part of housing benefit – and "elements" of the child tax credit and the working tax credits.

The child tax credit cut is the one which has been dubbed the "mummy tax" – but focusing on that change to the exclusion of others does damage to the point. Even in the Mail's mummy tax story, for instance, the case-study they present is of a woman who stands to lose far more from the housing benefit cuts than the child tax credit ones. And the idea, implicit in the selective complaints, that it is worse to hurt "mummies" than it is to hurt, say, the disabled is distasteful.

While Osborne may have been sloppy in conflating in- and out-of-work benefits, he was smarter than many commentators in not implying that the change was because such benefits were in some way "unsustainable" – a charge levied by, among others, the Sunday Times' David Smith.

Given 53 per cent of welfare spending goes on pensioners (table 3), the real unsustainable change was made in the last budget. In the spring, Osborne announced a "triple lock" for pensions, guaranteeing that they would be uprated by the higher of CPI, average wages or 2.5 per cent. And sure enough, the Autumn Statement saw the state pension uprated by more than either CPI or average wages.

The Chancellor isn't chasing sustainability. He's just attacking the poor.

Osborne. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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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.