What does Miliband mean by the "structural" welfare bill?

It doesn't even need capping.

Ed Miliband will cap "structural welfare spending" if he is elected in 2015, he announced today, saying that "such a cap will alert the next Labour government to problems coming down the track and ensure that we make policy to keep the social security budget in limits."

It's not entirely clear what Miliband means by "structural" welfare spending at this point. It could just be a political fudge, designed to mimic the Conservatives' similarly fudgy focus on the "structural" deficit. The structural deficit is a particularly difficult thing to actually measure, because it relies on three pieces of information all of which are themselves uncertain: the output gap, the relation of public spending to economic growth, and the response of tax revenues to both.

Get any of them wrong, and your estimate of the structural deficit is off; get all three wrong, and you can be billions of pounds off the mark. And look at just the variation in the estimates of the output gap, via Touchstone:

But whereas the structural deficit is at least a conventional economic concept, albeit one hugely prone to measurement error, it's not entirely clear what "structural" welfare spending is, and even less clear how to cap it.

The best guess is that the structural welfare bill is the bill which we would expect to see in normal times; in other words, Labour won't view a rise in housing benefit due to the recession as a problem, but would be more concerned if, during the recovery, it fails to drop down to lower levels.

If that is the definition, then it has an interesting outcome once Labour start to cap it, because, as Declan Gaffney showed last month, "there has been no structural increase in the level of aggregate working age welfare spending for a very long time". That's because welfare spending, properly construed, must take into account foregone revenue as well as public expenditure: the most prominent example of which is tax credits. Around £3bn of the cost of tax credits in 2012/13 came from an offset to income tax. Money wasn't being "spent", but it was certainly a cost of welfare.

And when you take into account other taxation expenditures – like the mortgage interest tax relief, which was abolished in 2000 – you find that structural welfare costs have stayed remarkably stable. This chart again from Declan Gaffney's piece:

 

The real question is what "structural" welfare means for people not of working age. Because, thanks to our ageing nation, the state pension liability is growing year-on-year, and even pushing back the pension age by a year from 2026 won't help too much. Of course, it would be possible for Labour to define that increase as something other than structural – "demographic", perhaps – and thereby dodge the question. But if they don't, the key effect of this promise could be that Labour has pledged to cut pensions, two years before a general election against a party which has pledged to keep them above inflation and wage rises indefinitely.

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

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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.