Labour outlines plan to tie benefits to contribution

Liam Byrne and Harriet Harman criticise "divide and rule" approach to welfare.

Writing in the Observer this weekend, Liam Byrne criticised the government's "divide and rule" approach to welfare, saying that both Osborne and Cameron had used the Philpott case to pit the rest of the public against benefits claimants. He said:

To distract the public from their failure to get the economy growing and control the rising bill for unemployment, they point the finger at families struggling to get by in an economy where opportunity has grown very, very thin.

He outlined a three-part plan for the welfare system, which intends to bring it back to the "old principle of contribution":

First, people must be better off in work than living on benefits. We would make work pay by reintroducing a 10p tax rate and supporting employers who pay the living wage. Second, we would match rights with responsibilities. Labour would ensure that no adult will be able to be live on the dole for over two years and no young person for over a year. They will be offered a real job with real training, real prospects and real responsibility. This would be paid for by taxing bankers' bonuses and restricting pension tax relief for the wealthiest. People would have to take this opportunity or lose benefits.

Third, we must do more to strengthen the old principle of contribution: there are lots of people right now who feel they pay an awful lot more in than they ever get back. That should change. We should start by letting councils give priority in social housing allocations to those who work and contribute to their community.

On the Today programme this morning, Harriet Harman expressed her support for the plans, saying:

He [Byrne] is talking about three principles which we’re working on up to the general election. One is that work should pay, secondly, there should be an obligation to take work, and thirdly that there should be support through a contributory principle for people putting into the system as well as taking out.

She also echoed Byrne's criticism of the government's "divisive" strategy:

Instead of just being divisive about it, which is what the government’s doing, they should actually be supporting the economy into growth. And also having a proper work programme, with a jobs guarantee, which is what we have been suggesting.

The "old principle of contribution" comes from the Beveridge Report, one of the documents on which the welfare state was founded after the Second World War.  It stresses that social security "must be achieved by co-operation between the State and the individual", through contributions from those who recieve benefits. The state "should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family".

The report also famously identified "Five Giant Evils" in society: Squalor, Ignorance, Want, Idleness and Disease. It remains to be seen whether Labour will identify these as well.

Harriet Harman. Photograph: Getty Images
Photo: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.