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.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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