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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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

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