Miliband must be bolder than Cameron on welfare reform

The Labour leader should look to reinvent the financing of all of the major pillars of the welfare state.

Ed Miliband’s self-identification with Margaret Thatcher has caught the imagination of many.  “She was a conviction politician and I think conviction really matters”, he has said.  Specifically she was able to rise “to the scale of challenge that the country faces” and “create a project that is genuinely going to make our economy work, not just for a few people but much more widely”.

The question is which challenge he would like to solve.  It’s not industrial relations this time.  In common with other developed nations, it is first the deficit and then the debt, and at the same time keeping the welfare state working effectively.    

The difficulty for all future political leaders of the UK is that the current structure of the welfare state will inexorably sweep away any reform efforts currently on the table.  The Office for Budget Responsibility predicts that net debt will bottom out at 60 per cent in 15 years’ time, which is still very high.  It will then reach 70 per cent in 2040, over 80 per cent in 2050 and over 100 per cent in 2060.  The big drivers of that increase will be health and pensions spending.  The net debt numbers of around 35 per cent in the 1990s and 2000s seem like a different world.

Other countries are better placed.  The Australian national debt will rise to only 20 per cent of GDP by 2050.  Like the UK, Australia guarantees all citizens health cover and a secure income in retirement.  Unlike the UK, the cost of paying for the welfare state is more evenly shared between Australian citizens and the government.  Australian citizens pay for nearly a third of health care themselves.  They contribute nearly 10 per cent of their income towards private pensions.   Four in five Australian pensioners receive a targeted state pension because of their other savings.  They also work longer: Australians retire at 65 against the UK norm of 63.

Some may see such a comparison as ideological.  Others will judge that “what counts is what works”.  The “project” is how to deliver security for households within a reasonable national budget constraint.  Speaking at the Labour Party conference, Liam Byrne said given the growth in the national debt, “savings are going to have to be made and I think there will be savings that are needed on welfare spending too”.

Others may say that it is politically impossible, or at the least so difficult that it should be left to future governments.  The trouble is that it will be even harder for those future governments: two in five voters today are aged over 55, rising to 45 per cent in 2020 and further after that.  The political window of opportunity is already narrowing.

Others will say that taxation should rise to meet the fiscal gap, and certainly some extra tax increases will be needed.  But this has to be kept in proportion because taxes on workers will already rise in future years as the tax base narrows (due to an ageing population).

As Thatcher drew up her industrial relations campaign, she was able to learn from the unsuccessful efforts of both the Wilson and Heath governments. Miliband can learn from the coalition’s fiscal policies. David Cameron has sought to limit the debate on the welfare state to changes to benefits for working-age people.  As a result his reforms will not rise “to the scale of the challenge that the country faces”, as measured by the fiscal position.  Miliband’s convictions should lead him to look wider and reinvent the financing of all of the major pillars of the welfare state.

Andrew Haldenby is director of the independent think-tank Reform.  Its new research report Entitlement Reform (#entitlementreform) is available at

Labour leader Ed Miliband speaks at the CBI's annual conference on 19 November 2012. Photograph: 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.