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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It's Gary Lineker 1, the Sun 0

The football hero has found himself at the heart of a Twitter storm over the refugee children debate.

The Mole wonders what sort of topsy-turvy universe we now live in where Gary Lineker is suddenly being called a “political activist” by a Conservative MP? Our favourite big-eared football pundit has found himself in a war of words with the Sun newspaper after wading into the controversy over the age of the refugee children granted entry into Britain from Calais.

Pictures published earlier this week in the right-wing press prompted speculation over the migrants' “true age”, and a Tory MP even went as far as suggesting that these children should have their age verified by dental X-rays. All of which leaves your poor Mole with a deeply furrowed brow. But luckily the British Dental Association was on hand to condemn the idea as unethical, inaccurate and inappropriate. Phew. Thank God for dentists.

Back to old Big Ears, sorry, Saint Gary, who on Wednesday tweeted his outrage over the Murdoch-owned newspaper’s scaremongering coverage of the story. He smacked down the ex-English Defence League leader, Tommy Robinson, in a single tweet, calling him a “racist idiot”, and went on to defend his right to express his opinions freely on his feed.

The Sun hit back in traditional form, calling for Lineker to be ousted from his job as host of the BBC’s Match of the Day. The headline they chose? “Out on his ears”, of course, referring to the sporting hero’s most notable assets. In the article, the tabloid lays into Lineker, branding him a “leftie luvvie” and “jug-eared”. The article attacked him for describing those querying the age of the young migrants as “hideously racist” and suggested he had breached BBC guidelines on impartiality.

All of which has prompted calls for a boycott of the Sun and an outpouring of support for Lineker on Twitter. His fellow football hero Stan Collymore waded in, tweeting that he was on “Team Lineker”. Leading the charge against the Murdoch-owned title was the close ally of Labour leader Jeremy Corbyn and former Channel 4 News economics editor, Paul Mason, who tweeted:

Lineker, who is not accustomed to finding himself at the centre of such highly politicised arguments on social media, responded with typical good humour, saying he had received a bit of a “spanking”.

All of which leaves the Mole with renewed respect for Lineker and an uncharacteristic desire to watch this weekend’s Match of the Day to see if any trace of his new activist persona might surface.


I'm a mole, innit.