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 http://www.reform.co.uk/

Labour leader Ed Miliband speaks at the CBI's annual conference on 19 November 2012. Photograph: Getty Images.
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

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.

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