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.

Shazia Awan
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I'm a Welsh Asian - so why doesn't the Welsh Assembly have a box for me to tick?

A bureaucrat's form clumsily equates being Welsh with being White. 

As someone born in Caerphilly, who grew up in Wales, and is learning Welsh, I feel nothing but Welsh. I am a proud Welsh Asian – and yet the Welsh Assembly appear to be telling me and many like me that that’s not an option.

An equalities form issued in Wales, by the Welsh Assembly, that does not have an option to identify as non-white and Welsh. What kind of message does this send, especially at a time of public worries about integration? Sadly, I am not so surprised at this from an institution which, despite a 17-year history, seems to still struggle with the very basics of equality and diversity.
 
By the omission of options to identify as Welsh and Asian, Welsh and black, Welsh and mixed heritage (I could go on), the Welsh Assembly's form has told us something wider about the institutional perception of our diverse communities in Wales. There are options on the form for "Asian or Asian British Indian" and "Black or Black British Caribbean", to give but two examples. And also for "White British", "White Irish" and "White Welsh". But not for "Asian Welsh", or "Black Welsh". Did it not occur to anyone that there was something wrong? 

It seems like a monumental error by the Welsh Assembly Commission, which designed the form, and a telling one at that. 

A predominantly white institution (there are two non-white Assembly members out of 60 and there has never been a female Black, Asian or minority ethnic Assembly member) has dictated which ethnic group is deemed to look Welsh enough to tick their box (for those of us Welsh Asians, it seems the only box to tick is that most Orientalist of descriptions, "Other"). 
 
Over the summer, meanwhile, we saw the First minister of Wales Carwyn Jones rather clumsily assemble his Brexit advisory group. This group was made up of predominantly white, middle aged men, and not a single person from a black, Asian and minority ethnic background. It seems that despite the box ticking exercises, the First Minister is taking advice from his “White Welsh” group. 
 
And it matters. The Welsh Assembly was established with a statutory duty to promote equality in Wales. In June, 17 out of 22 local authority areas in Wales voted Leave. Post-referendum, our proud Welsh BAME communities have been affected by hate crime. The perpetrators wish to draw a distinction between "them" and "us". Our national parliament is doing nothing to challenge such a distinction. Does it really think there are no non-white Welsh people in Wales? 

In Wales, we have a huge sense of overwhelming pride in what it means to be Welsh, from pride in our rugby and football teams, our language, to our food and our culture. Many friends over the years from different backgrounds have come to Wales to either study or work, fallen in love with our country and chosen to make it their home. They identify as Welsh. The thing about those of us who are Welsh and proud is that we understand that we are stronger in our diversity and stronger together as a Welsh nation. It’s a shame that our Welsh Assembly is not operating with that same sense of understanding that we have in our communities in Wales. 
 
No doubt the nameless form creator simply copied a format seen elsewhere, and would argue the omission is not their fault. Yet in these tense times, such an omission seems to arrogantly suggest Welsh is something exclusively White. 
 
The Welsh Assembly has a long way to travel on the road to creating a fairer society. From these kind of blunders, it seems clear that it is not even off the starting line. 
 
Shazia Awan is an equality activist and Consultant advising on equality and diversity issues. She is launching Women Create, a social enterprise to help women and young people from disadvantaged backgrounds into enterprise and employment. She  is Vice President of the Council for Voluntary Youth Services in Wales, is an Ambassador to Show Racism the Red Card and she was the first Asian woman to address a Welsh Tory party conference. 

 

Shazia Awan is an equality activist. She is launching Women Create, a social enterprise to help women and young people from disadvantaged backgrounds into enterprise and employment. She is Vice President of the Council for Voluntary Youth Services in Wales and she was the first Asian woman to address a Welsh Tory party conference. You can follow her @shaziaawan.