The welfare debate is only just warming up

Making out that cutting working-age welfare won’t hurt those in work is so divorced from reality that there was always going to be backlash. None of which is to say that Osborne’s gamble won’t pay off.

Powerful Chancellors often over-reach politically before a fall, or at least a bump. For Gordon Brown, it was the desire to cut the basic rate of tax to 20p which brought with it the abolition of the 10p tax rate and the debacle that ensued. When it comes to George Osborne, the political itch that needs to be scratched is the desire to legitimise cutting support for those on low incomes – working and non-working families alike – through his favoured framing of supporting strivers and hurting scroungers.

Whether this agenda, and its associated parliamentary game-playing, will work to his advantage, or end with a bump, is not just the issue of the month it’s a theme that will run through 2013 all the way to the next election. Expect further ‘welfare savings’ reaching out beyond the Spending Review until 2020, dwarfing those announced in the Autumn Statement, to be announced in the second half of the Parliament (more likely by the Conservatives, than the Coalition) giving rise to an eye-watering grand total that will be the centre-piece of David Cameron’s election campaign. It will be coming to a billboard near you in the form of a poster about ‘Labour’s tax-bombshell’ arising from its need to pay for welfare.

Those rushing to declare how all this will play out with the electorate based on a few uncertain polls should pause: we have not yet reached the end of the beginning of this debate, with the Parliamentary vote on up-rating due in January. There isn’t a settled view among the public. There’s not a well developed awareness of the nature of the hardship that will arise from the scale of the cuts, the great bulk of which are still to come. Nor, conversely, can we gauge the consequences of the political resentment that will continue to swell as real wages fall through next year and into 2014.

But a few early conclusions can be drawn. One is the piercing of the hubristic view that a casual  deployment of the ‘strivers’ narrative is enough on its own to ensure an easy ride for further welfare cuts: there is political risk here for Osborne as well as opportunity. Another is that Labour will have to marry its current opposition, based on fairness, with a forensic fiscal analysis of how its measures could secure lower welfare bills in the future via higher employment. This means saying more about how they will deploy effective job-programmes (which given the successful legacy of the Future Jobs Fund should be possible); more about how their wider strategy for welfare and public services will enable higher employment; and more about how any up-front costs would be paid for. As future welfare cuts mount, and the scale of the impending tax-attack from the Conservatives grows, a fairness argument on its own will leave it highly exposed. A fiscal response is needed too.

In the meantime Labour is resting heavily on the fact that by ramping up the rhetorical stakes Osborne has succeeded in rumbling himself. Up until now the part of his strategy that the Chancellor is most anxious about – that cutting ‘welfare’ actually means hitting the working poor – received scant media attention. Now, for the first time, it’s considered news.   

The hope is that this new spirit of scrutiny results in a closer examination of what has actually been happening to in-work support. Take working tax credit. Osborne’s first budget in 2010 took the decision to freeze a large chunk of it. Next up was the cut in support for childcare going exclusively to working parents. Then in autumn 2011 came the decision to freeze the remaining aspects of working tax credit (at a time when inflation had spiked at 5%) followed in this year’s Budget by deep cuts in support for those working part-time (at a time of mass under-employment). It is an unnoticed irony that the Autumn Statement’s controversial decision to uprate working tax credit by a mere 1% actually represents a more generous offering from the Chancellor than his previous diet of cash freezes and policy cuts.

The Coalition’s retort is, of course, that a combination of increased personal tax allowances and, in time, the Universal Credit will improve the plight up the working poor. To assert that no one in work will be worse off once increased tax allowances are taken into account is manifest nonsense – to see why you only need to consider the example of the person earning less than the personal tax allowance and receiving tax credits. Indeed, on average the losses arising from the Autumn Statement due to cuts to benefits and tax credits outweigh the gains from the increased allowance across the entire bottom half of the income distribution (though bear in mind that hidden within these averages will be many working households who do gain overall: most obviously dual earning households without children).

As for the Universal Credit, it is in the unfortunate position of being over-hyped, under-planned and now eroded by cuts – all prior to implementation. Conceived out of the laudable desire to ensure that the low paid can keep more of their own money, it is actually going to result in increased numbers facing higher effective tax rates. Moreover, the Coalition’s two flagship ‘striver’ policies – personal tax allowance and universal credit - are set to collide in something of a Whitehall car-crash. Those receiving universal credit will lose two thirds of any gains arising from future increases in the personal allowance – gains that other, higher earning, tax payers will receive. As one policy gives, the other simultaneously takes.

The extent to which any of this really impacts on the politics of welfare cuts over the next year is, of course, another matter. The deadening language in which most of the debate is conducted - earnings disregards, uprating systems, and marginal deduction rates – is more likely to result in glazed eyes than raised voices. More visible, and combustible, for the Coalition is likely to be the impending cut to council tax benefit (again aimed at both the working poor and the out of work) which will show up in spring’s council tax bills.

Running down those on state support, whether in or out of work, and implying that they are somehow undeserving is nasty politics. And making out that cutting working-age welfare won’t hurt those in work is so divorced from reality that there was always going to be backlash. None of which is to say that Osborne’s gamble won’t pay off. It’s still all to play for. Either way, the heavy handed manner in which this political trap was set doesn’t reflect well. Over the longer term Chancellors fare best when they leave the political tricksiness to others.

Passengers travel on a London bus. Photo: Getty

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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The Lib Dems' troubled start doesn't bode well for them

Rows over homosexuality and anti-Semitism are obscuring the party's anti-Brexit stance.

Tim Farron has broken his silence on the question of whether or not gay sex is a sin. (He doesn't.)

Frankly, this isn't the start to the general election campaign that the Liberal Democrats would have wanted. Time that they hoped would be spent talking about how their man was the only one standing up to Brexit has instead been devoted to what Farron thinks about homosexuality.

Now another row may be opening up, this time about anti-Semitism in the Liberal Democrats after David Ward, the controversial former MP who among other things once wrote that "the Jews" were "within a few years of liberation from the death camps...inflicting atrocities on Palestinians" has been re-selected as their candidate in Bradford East. That action, for many, makes a mockery of Farron's promise that his party would be a "warm home" for the community.

Politically, my hunch is that people will largely vote for the Liberal Democrats at this election because of who they're not: a Conservative party that has moved to the right on social issues and is gleefully implementing Brexit, a riven Labour party led by Jeremy Corbyn, etc. But both rows have hobbled Farron's dream that his party would use this election.

More importantly, they've revealed something about the Liberal Democrats and their ability to cope under fire. There's a fierce debate ongoing about whether or not what Farron's beliefs should matter at all. However you come down on that subject, it's been well-known within the Liberal Democrats that there were questions around not only Farron's beliefs but his habit of going missing for votes concerning homosexuality and abortion. It was even an issue, albeit one not covered overmuch by the press, in the 2015 Liberal Democrat leadership election. The leadership really ought to have worked out a line that would hold long ago, just as David Cameron did in opposition over drugs. (Readers with long memories will remember that Cameron had a much more liberal outlook on drugs policy as an MP than he did after he became Conservative leader.)

It's still my expectation that the Liberal Democrats will have a very good set of local elections. At that point, expect the full force of the Conservative machine and their allies in the press to turn its fire on Farron and his party. We've had an early stress test of the Liberal Democrats' strength under fire. It doesn't bode well for what's to come.

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

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