IDS is in trouble over his strivers’ tax – and he knows it

Unable to justify the government's decision to cut support for families, the Work and Pensions Secretary has resorted to myths.

You can tell ministers are in trouble when they start peddling distortions on the scale we've seen from Iain Duncan Smith this week. IDS is in trouble. And he knows it.

Next week, the beleaguered Work and Pensions Secretary comes to the Commons to defend the indefensible. The comprehensive failure of George Osborne's budgets has forced the independent Office for Budget Responsibility (OBR) to revise up its forecasts for the claimant count by a third of a million. That's pushed up welfare spending by an eye-watering £13bn. To pay that bill, IDS has been asked to push through a strivers' tax - more than 60 per cent of which will come from working families -  on top of the £14bn already removed from tax credits, while Britain's richest citizens get a £3bn a year tax break.

It’s unjustifiable. And IDS knows it. So this week, we've had a very muddled attempt to make up some kind of case.

First, we had a made-up story that tax credit fraud had jumped by 58 per cent. This claim lasted about as long as it took Channel 4's FactCheck to gently point out, that IDS couldn't actually add up and the sums were wrong. Then we had a new line of attack. Benefits are rising faster than earnings. Except they're not. In the last ten years wages have risen faster than Jobseeker's Allowance, and the OBR tells us wages will power ahead of inflation in the next four years.

Then Nick Clegg tried to claim Labour was being inconsistent to low paid public service workers. We back a 1 per cent pay freeze, so why not a 1 per cent benefits cap? Because we've always said that 1 per cent should be an average with a tougher squeeze for the best paid public servants to fund higher pay rises for the lowest paid.

It's all fairly desperate stuff from a government that's trying at all costs to avoid admitting that the lion's share of the savings will come from working families' tax credits. So the real question in next week's debate is this: how can the government justify cutting working families' tax credits to pay for their failure to get Britain back to work - when millionaires are being given a tax cut? Right now working people are being hit with a double whammy. Wages are stagnant and tax credits are being slashed whilst at the same time the cost of living goes through the roof as anyone who boarded a train today will tell you.

The basic truth that IDS won't confront is simple. The best way to get welfare spending down is to get Britain back to work. But his much vaunted welfare revolution is in tatters. The Work Programme is literally worse than doing nothing. Universal Credit is beset with IT problems and has already been raided to pay for rising dole bills. Now the benefit cap is being pushed to the back end of the year because it’s a mess. Next week's Welfare Uprating Bill does nothing to address any of this. It does nothing to create a single new job.

More than half of the people currently out of work have been so for more than six months but the government isn’t lifting a finger to help. The Youth Contract is nowhere to be seen and the all too predictable result is youth unemployment still hovering around a million. That's why this government should be looking at far more concerted action to get Britain back to work with ideas like Labour's proposed tax on bankers' bonuses to create a fund big enough to get over 100,000 young people back into jobs.

There will plenty more smoke and mirrors from the government over the coming months but they can't disguise the reality of this Bill. It is a strivers’ tax which hammers hardworking families. The vast majority of the households hit are in work. Those are the people this government wants to cover the cost of their failure whilst 8,000 millionaires receive a tax cut worth an average of £107,500. If this government wants a battle over fairness whilst they are taking from hardworking families to fund a tax cut for the wealthiest, Labour is ready to take it on.

Work and Pensions Secretary Iain Duncan Smith outside Number 10 Downing Street. Photograph: Getty Images.

Liam Byrne is Labour MP for Birmingham Hodge Hill, cofounder of the UK-China Young Leaders Roundtable and author of Turning to Face the East: How Britain Prospers in the Asian Century.

Photo: Getty
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The Future of the Left: A new start requires a new economy

Creating a "sharing economy" can get the left out of its post-crunch malaise, says Stewart Lansley.

Despite the opportunity created by the 2008 crisis, British social democracy is today largely directionless. Post-2010 governments have filled this political void by imposing policies – from austerity to a shrinking state - that have been as economically damaging as they have been socially divisive.

Excessive freedom for markets has brought a society ever more divided between super-affluence and impoverishment, but also an increasingly fragile economy, and too often, as in housing, complete dysfunction.   Productivity is stagnating, undermined by a model of capitalism that can make big money for its owners and managers without the wealth creation essential for future economic health. The lessons of the meltdown have too often been ignored, with the balance of power – economic and political – even more entrenched in favour of a small, unaccountable and self-serving financial elite.

In response, the left should be building an alliance for a new political economy, with new goals and instruments that provide an alternative to austerity, that tackle the root causes of ever-growing inequality and poverty and strengthen a weakening productive base. Central to this strategy should be the idea of a “sharing economy”, one that disperses capital ownership, power and wealth, and ensures that the fruits of growth are more equally divided. This is not just a matter of fairness, it is an economic imperative. The evidence is clear: allowing the fruits of growth to be colonised by the few has weakened growth and made the economy much more prone to crisis.

To deliver a new sharing political economy, major shifts in direction are needed. First, with measures that tackle, directly, the over-dominance of private capital. This could best be achieved by the creation of one or more social wealth funds, collectively held financial funds, created from the pooling of existing resources and fully owned by the public. Such funds are a potentially powerful new tool in the progressive policy armoury and would ensure that a higher proportion of the national wealth is held in common and used for public benefit and not for the interests of the few.

Britain’s first social wealth fund should be created by pooling all publicly owned assets,  including land and property , estimated to be worth some £1.2 trillion, into a single ring-fenced fund to form a giant pool of commonly held wealth. This move - offering a compromise between nationalisation and privatization - would bring an end to today’s politically expedient sell-off of public assets, preserve what remains of the family silver and ensure that the revenue from the better management of such assets is used to boost essential economic and social investment.

A new book, A Sharing Economy, shows how such funds could reduce inequality, tackle austerity and, by strengthening the public asset base, rebalance the public finances.

Secondly, we need a new fail safe system of social security with a guaranteed income floor in an age of deepening economic and job insecurity. A universal basic income, a guaranteed weekly, unconditional income for all as a right of citizenship, would replace much of the existing and increasingly means-tested, punitive and authoritarian model of income support. . By restoring universality as a core principle, such a scheme would offer much greater security in what is set to become an increasingly fragile labour market. A basic income, buttressed by a social wealth fund, would be key instruments for ensuring that the potential productivity gains from the gathering automation revolution, with machines displacing jobs, are shared by all.  

Thirdly, a new political economy needs a radical shift in wider economic management. The mix of monetary expansion and fiscal contraction has proved a blunderbuss strategy that has missed its target while benefitting the rich and affluent at the expense of the poor. By failing to tackle the central problem  – a gaping deficit of demand (one inflamed by the long wage squeeze and sliding investment)  - the strategy has slowed recovery.  The mass printing of money (quantitative easing) may have helped prevent a second great depression, but has also  created new and unsustainable asset bubbles, while austerity has added to the drag on the economy. Meanwhile, record low interest rates have failed to boost private investment and productivity, but by hiking house prices, have handed a great bonanza to home owners at the expense of renters.

Building economic resilience will require a more central role for the state in boosting and steering investment programmes, in part through the creation of a state investment bank (which could be partially financed from the proposed new social wealth fund) aimed at steering more resources into the wealth creating activities private capital has failed to fund.

With too much private credit used for financial speculation and property, and too little to small companies and infrastructure, government needs to play a much more direct role in creating credit, while restricting the almost total freedom currently handed to private banks.  Tackling the next downturn, widely predicted to land within the next 2-3 years, will need a very different approach, including a more active fiscal policy. To ensure a speedier recovery from recessions, future rounds of quantitative easing should, within clear constraints, boost the economy directly by financing public investment programmes and cash handouts (‘helicopter money’).  Such a police mix – on investment, credit and stimulus - would be more effective in boosting the real economic base, and would be much less pro-rich and anti-poor in its consequences.

These core changes would greatly reform the existing Anglo-Saxon model of capitalism and provide the foundations for building support for a new direction for progressive politics. They would pioneer new tools for building a fairer, more dynamic and more stable economy. They could draw on experience elsewhere such as the Alaskan annual citizen’s dividend (financed by a sovereign wealth fund) and the pilot basic income schemes launching in the Netherlands, Finland and France.  Even mainstream economists, including Adair Turner, former chairman of the Financial Services Authority, are now talking up the principle of ‘helicopter money’. For these reasons, parts of the package are likely to prove publicly popular and command support across the political divide. Together they would contribute to a more stable economy, less inequality, and a more even balance of power and opportunity.

 

Stewart Lansley is the author of A Sharing Economy, published in March by Policy Press and of Breadline Britain, The Rise of Mass Impoverishment (with Joanna Mack).