Why the Welfare Uprating Bill deserves to be defeated

Osborne's plan to cut benefits will force more of the poorest families to choose between heating and eating.

After weeks of increasingly fractious debate, MPs will vote today on the government’s Welfare Benefits Uprating Bill, which enshrines in law George Osborne’s plan to raise benefits by 1 per cent per year for the next three years, rather than in line with price increases. With the support of almost all Conservative and Liberal Democrat MPs, the bill will easily pass the House of Commons (Labour, to its credit, will vote against it) but here are four reasons why it deserves to be defeated.

1. It will force even more of the poorest families to choose between heating and eating

By raising benefits by 1 per cent, rather than in line with inflation, which stood at 2.2 per cent in September 2012 (the month traditionally used to calculate benefit increases), the coalition will leave the poorest families even more vulnerable to fluctuations in food and energy prices. Inflation is forecast by the Office for Budget Responsibility to be 2.6 per cent in September 2013 and 2.2 per cent in September 2014, meaning that those families affected will have suffered a cumulative loss of four per cent of income by the end of the period. For many, this will mean being forced to choose between heating their home and feeding their family.

As the Institute for Fiscal Studies reported yesterday, 2.5 million households without someone in work will lose an average of £215 per year in 2015-16, while seven million households with someone in work will lose an average of £165 per year. If, as in recent years, inflation rises faster than expected, these losses will be even greater.

2. It will damage the economy by reducing real incomes

When wages are stagnant and unemployment is high, benefit payments automatically increase in order to limit the fall in consumer demand. While government borrowing rises as a result, these "automatic stabilisers" have long been recognised as an essential tool of economic policy. In October 2012, George Osborne remarked: "We have never argued that you stop what economists call the automatic stabilisers operating - the lower tax receipts and extra government payments [such as higher benefits] that follow if, for example, the global economy turns down." Since those on low incomes are forced to spend, rather than save, what little they receive, they automatically stimulate growth.

But Osborne’s decision to cap benefit increases at 1 per cent will reduce the effectiveness of the automatic stabilisers as payments will now fall, rather than rise, in line with inflation, reducing real-terms incomes. As a result, Britain’s anaemic economy will be even more prone to recession.

3. Low wages aren't a reason to cut benefits

In seeking to justify the bill, the Conservatives have repeatedly highlighted the fact that in recent years benefits have risen faster than private sector wages (see their latest poster). Since 2007, the former have increased by an average of 20 per cent (in line with inflation), while the latter have increased by 11.4 per cent.

But this is an argument for increasing wages (for instance, by ensuring greater payment of the living wage), not for cutting benefits. Many of those whose wages have failed to keep pace with inflation rely on in-work benefits such as tax credits to protect their living standards. The government's decision to cut these benefits in real-terms (60 per cent of the real-terms cut falls on working families) will further squeeze their disposable income.

When Iain Duncan Smith says that benefits have risen faster than wages, he is really complaining that wages have risen more slowly than inflation (and are expected to continue to do so until at least 2014). But rather than prompting the government to slash benefits, this grim statistic should encourage it to pursue a genuine growth strategy that ensures more people have access to adequately paid employment.

Finally, while benefits have increased faster than wages in the last five years, this is a temporary quirk caused by the recession. Until now, their value relative to wages has plummeted. In 1979, unemployment benefit was worth 22 per cent of average weekly earnings. Today, it is worth just 15 per cent.

4. There are fairer ways to reduce the deficit

The coalition isn't wrong when it says the deficit, which stood at £121.6bn last year, needs to be reduced (although at a pace commensurate with the state of the economy). But there are fairer ways to raise revenue than cutting benefits for the poorest workers and jobseekers. While reducing welfare payments, the government is simultaneously cutting the top rate of income tax on earnings over £150,000 from 50p to 45p, a measure that will benefit the average income-millionaire by £107,500 a year. Were the government to reverse this measure, it could expect to raise around £3bn a year, more than enough to fund inflation-linked rises in benefits.

Even in the first year of the 50p rate, when temporary forestalling meant many avoided it (for instance, by bringing forward income to 2009-10, the year before the new rate took effect - a trick they could only have played once), the tax raised an extra £1.1bn. This alone is enough to meet the annual cost of increasing benefits in line with inflation (the government expects to save £0.9bn in 2014-15 by capping increases at 1 per cent). But rather than balancing the budget on the backs of the richest (just 1.5 per cent earn more than £150,000), the government has chosen to do so on the backs of the poorest.

George Osborne leaves 11 Downing Street on 7 January 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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How the shadow cabinet forced Jeremy Corbyn not to change Labour policy on Syria air strikes

Frontbenchers made it clear that they "would not leave the room" until the leader backed down. 

Jeremy Corbyn had been forced to back down once before the start of today's shadow cabinet meeting on Syria, offering Labour MPs a free vote on air strikes against Isis. By the end of the two-hour gathering, he had backed down twice.

At the start of the meeting, Corbyn's office briefed the Guardian that while a free would be held, party policy would be changed to oppose military action - an attempt to claim partial victory. But shadow cabinet members, led by Andy Burnham, argued that this was "unacceptable" and an attempt to divide MPs from members. Burnham, who is not persuaded by the case for air strikes, warned that colleagues who voted against the party's proposed position would become targets for abuse, undermining the principle of a free vote.

Jon Ashworth, the shadow minister without portfolio and NEC member, said that Labour's policy remained the motion passed by this year's conference, which was open to competing interpretations (though most believe the tests it set for military action have been met). Party policy could not be changed without going through a similarly formal process, he argued. In advance of the meeting, Labour released a poll of members (based on an "initial sample" of 1,900) showing that 75 per cent opposed intervention. 

When Corbyn's team suggested that the issue be resolved after the meeting, those present made it clear that they "would not leave the room" until the Labour leader had backed down. By the end, only Corbyn allies Diane Abbott and Jon Trickett argued that party policy should be changed to oppose military action. John McDonnell, who has long argued for a free vote, took a more "conciliatory" approach, I'm told. It was when Hilary Benn said that he would be prepared to speak from the backbenches in the Syria debate, in order to avoid opposing party policy, that Corbyn realised he would have to give way. The Labour leader and the shadow foreign secretary will now advocate opposing positions from the frontbench when MPs meet, with Corbyn opening and Benn closing. 

The meeting had begun with members, including some who reject military action, complaining about the "discorteous" and "deplorable" manner in which the issue had been handled. As I reported last week, there was outrage when Corbyn wrote to MPs opposing air strikes without first informing the shadow cabinet (I'm told that my account of that meeting was also raised). There was anger today when, at 2:07pm, seven minutes after the meeting began, some members received an update on their phones from the Guardian revealing that a free vote would be held but that party policy would be changed to oppose military action. This "farcical moment", in the words of one present (Corbyn is said to have been unaware of the briefing), only hardened shadow cabinet members' resolve to force their leader to back down - and he did. 

In a statement released following the meeting, a Corbyn spokesperson confirmed that a free vote would be held but made no reference to party policy: 

"Today's Shadow Cabinet agreed to back Jeremy Corbyn's recommendation of a free vote on the Government's proposal to authorise UK bombing in Syria.   

"The Shadow Cabinet decided to support the call for David Cameron to step back from the rush to war and hold a full two day debate in the House of Commons on such a crucial national decision.  

"Shadow Cabinet members agreed to call David Cameron to account on the unanswered questions raised by his case for bombing: including how it would accelerate a negotiated settlement of the Syrian civil war; what ground troops would take territory evacuated by ISIS; military co-ordination and strategy; the refugee crisis and the imperative to cut-off of supplies to ISIS."

George Eaton is political editor of the New Statesman.