Labour should make the economic case against welfare cuts

Welfare cuts aren't just bad for the poor, they're bad for growth too. Miliband and Balls should say so.

Labour and other opponents of the government's welfare cuts have so far focused on their unfairness. How can ministers charge social housing tenants for their "spare rooms" (the notorious "bedroom tax"), cut council tax support by 10 per cent (forcing thousands of families to pay the tax for the first time) and cap benefit increases at just 1 per cent while simultaneously handing 13,000 millionaires an average tax cut of £100,000 a year? But in doing so they are in danger of ignoring another important argument against the measures: welfare cuts aren't just bad for the poor, they're bad for growth too. 

When George Osborne announced most of the government's welfare reforms in his first Budget and in the 2010 Spending Review (the bedroom tax was described as "limiting social tenants’ entitlement to appropriately sized homes") it was on the assumption that the economy would be growing at nearly 3 per cent a year (the OBR originally forecast growth of 2.8 per cent in 2012 and 2.9 per cent in 2013). It is now expected to grow by just 0.6 per cent. Rather than cutting into an expanding economy, Osborne will be cutting into a stagnant one. And austerity, as the OBR reminded David Cameron last week, has  consequences. For every £100 of welfare cuts, GDP is reduced by around £60 a year. 

To anyone with an elementary understanding of economics, this will come as no surprise. If the government reduces someone's benefits by £728 a year (the average annual cost of the "bedroom tax"), that's £728 less for that person to spend on goods and services. And since, as Paul Krugman sagely observes, "your spending is my income" (and "my spending is your income"), it's not just the claimant who loses out, it's shops and businesses too.

In addition, since the poor are more likely to spend, rather than save, what little they receive, welfare cuts are around twice as economically harmful as tax increases (the OBR estimates that output is reduced by £60 for every £100 of welfare cuts, compared to £35 for increases in VAT and £30 for increases in income tax). It's for this reason that wise governments allow welfare spending to rise in times of stagnation. While borrowing temporarily increases as a result, higher benefits (known as the  "automatic stabilisers") are an essential means of maintaining consumer demand. 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." In his recent New Statesman essay, Vince Cable similarly claimed: "Unlike the Treasury in the interwar period, which insisted on balanced budgets, the coalition government has been Keynesian in approaching fiscal policy in a broadly counter-cyclical manner by letting stabilisers operate."

But Osborne’s decision to cap benefit increases at 1 per cent (alongside other pro-cyclical measures) runs entirely against such logic. Welfare 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. Welfare cuts, in short, aren't just bad for the poor, they're bad for all of us. And it's time Labour and the left said so.

Work and Pensions Secretary Iain Duncan Smith speaks at last year's Conservative conference in Birmingham. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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There is nothing progressive about making immigrants scapegoats

Labour's so-called "moderates" are going down a dangerous path.

This is what we know about the consequence of Brexit so far: bigots have been emboldened, and racist feelings that have long been lurking under the surface of British society are out in the open. But instead of prompting a crisis of conscience among the political elite, the EU result and its violent consequences has only exacerbated their shallow but dangerous understanding of immigration and public anger.

Chuka Umunna, Stephen Kinnock and Rachel Reeves are some of the Labour MPs who been talking irresponsibly about immigration. In recent weeks these “moderates” have been calling for Labour to support “managed migration” or lamented that the party hasn’t taken a “muscular” enough stance on the subject. Shocked by the referendum result they have accepted the myth that migration undercuts wages, despite the fact that research says the contrary; and claimed that immigration causes racism, ignoring the fact that people who have experienced the highest levels of migration are the least anxious about it.

As part of his analysis of immigration, Umunna said migrants must stop leading “parallel lives” and integrate into British society. Talk of integration is so often used to attack migrants but community cohesion isn’t a one-way street. If Polish people open shops in their communities, they’re accused of taking over; if they keep to themselves, perhaps in part because of abuse they get, they’re refusing to integrate. Meanwhile English language classes remain woefully underfunded and the migration impact fund met the government’s axe back in 2010.

But there’s an ill-informed logic that you have to give way on immigration to preserve “progressive policies”. People who think this miss the point: there is nothing progressive about pandering to anti-immigration sentiment and in the process helping lay the ground for xenohpobia. The referendum result and ensuing violence was not the outcome of ignoring peoples’ so called “legitimate concerns” it was the result of politicians and the media scapegoating and demonising immigrants over the past decade.

We already know conceding ground on immigration simply gives anti-migrant politicians ammunition. Brendan Cox, whose MP wife Jo was killed in her constituency, said: “Petrified by the rise of the populists they [mainstream politicians] try to neuter them by taking their ground and aping their rhetoric. Far from closing down the debates, these steps legitimise their views, reinforce their frames and pull the debate further to the extremes.”

Labour were complicit in creating ground for xenophobia to breed. The party’s craven submission to right-wing anti-immigration rhetoric is no new phenomenon; think Ed Miliband’s “controls on immigration” mugs at the last general election. Afraid of laying out the facts and losing votes to people who feared immigration, Labour fed - instead of countered - incendiary rhetoric.

We have seen the violent and ugly consequences of what happens when anti-migrant politics is not robustly opposed. The numbers of hate crimes have surged since the referendum; people from all over the world have had abuse hurled at them and Arkadiusz Jóźwik, a man from Poland, was murdered in Harlow. This violence was not born in a vacuum, nor was it solely the result of the Leave campaign’s virulently racist message. It was produced by a lethal concoction: anti-migrant politics and a poisonous right-wing media fused with public feelings of economic and social disenfranchisement. Instead of recognising successive how government’s policies had disadvantaged large swathes of people, politicians blamed immigrants. And so where prejudice already existed, they aggravated it.

It is in this climate of misinformation and scaremongering that people form their views. Most Briton want the number of immigrants in this country to be reduced. But then in 2014 Britons on average thought 24 per cent of the population were immigrants, which was nearly twice the real figure of 13 per cent. The imagined threat that migrants pose to this country only grows with every lie Labour repeat about immigration. Treading further into this ground as Umunna, Kinnock and Reeves have done is an entirely irresponsible decision.

“If you give ground to anti-immigrant politics” Diane Abbott said, “it will sweep away all of us.” The anti-immigration feeling some Labour MPs want to capitulate to isn’t just about immigrants from Europe; it’s also about race. Post-Brexit violence didn’t only affect people from EU states; British-born people of colour were told aggressively and repeatedly that they didn’t belong. This is because anti-immigration feeling at times acts as a proxy for a resurgent national identity tied to whiteness and visible minorities are seen as the enemy within. There’s an Islamophobic strain to this. TellMama, an organisation that records anti-Muslim incidents in the UK, found attacks on Muslims they spiked days following the Brexit result – and they were directly linked to Brexit. No matter how well people of colour integrate, they are told they never quite fit - talking irresponsibly about immigration only makes this worse. Ask Nadiya Hussain; she won Bake Off, a programme that couldn’t get more British, and still she experiences racist abuse.

It is impossible to form a progressive approach to immigration while reiterating lies about people from abroad. This is an approach Labour already tried and it doesn’t work: it only feeds the flames of prejudice. The truly brave approach would be to lay out the positive case for immigration because it’s patronising to assume the electorate are incapable of listening to reason if it’s framed in the right way. In a country where migrants and people of colour are told they don’t belong, there is nothing progressive about accepting myths about immigration.

Maya Goodfellow researches race and racism in Britain. She is a staff writer at LabourList.