The poor could be the losers from Labour's welfare cap

If measures designed to tackle low pay and reduce rents fail to make sufficient progress, the danger is that families will be further impoverished.

Ed Miliband was right in his speech on social security today to suggest that it is neither a decrepit structure, nor an underclass of lazy layabouts, which is the real source of stress in the system. Instead, an analysis acknowledging that it is the broader structural causes of need that are testing the workings of (or at least sympathy for) social security is clearly the right way to go. We all know that in part it is low wages that underpin a large tax credits bill, and rising rents that have to some extent driven up housing benefit in recent years.

Where Miliband went off track, however, was in then echoing coalition rhetoric on expenditure control, and in particular his suggestion that a Labour government would cap ‘structural’ social security spending on a three-year basis. The politics behind this move are clear– talking tough on spending - but does the proposal make good sense in policy terms?

To begin, there is a problem of definition. The distinction between structural as opposed to cyclical social security spending is not as neat as one might like. While unemployment benefits are clearly connected to the rise and fall of the economy, few other working-age benefits are immune from the vagaries of the cycle. It is underemployment alongside low wages that has driven up demand for tax credits, and a rising caseload that, to some degree, explains the growth in cash terms of the housing benefit bill since 2008.

In addition, the structural-cyclical dichotomy is from a decidedly pre-universal credit world. When in and out-of-work benefits, housing benefit and children’s support are rolled up into one from October this year the distinction will be even harder to fathom. While the practicalities of the coalition’s plans for capping annually managed expenditure have already been questioned, it’s hard to see how adding hazy distinctions into the exercise will make it any more workable.

That said, in the last three years the social system has been riddled with caps of one sort or another. While the overall benefit cap has attracted most attention, the coalition has also sought to hem in housing benefit in a number of ways: since April 2011, for example, support to claimants has been restricted to smaller sized properties, to more limited levels of rent, and if single, is cut according to age.

This tangle of new rules is designed to constrain housing benefit expenditure, albeit in an opaque and confusing manner. But has it? A quick look at housing benefit statistics shows that the increase in the average award since April 2011 is actually no different than that observed prior to these changes being introduced, suggesting that rents have not responded as anticipated.

Instead, to date, the squeeze from the various caps has been felt by claimants, not budget lines. Low income families and individuals have had to eke out already meagre budgets to cover shortfalls, make difficult decisions about whether to move and disrupt their and their children’s lives, or go cap (ha) in hand and apply for discretionary housing payments or charitable forms of support.

If Labour, or indeed the coalition, were to limit the overall social security budget, what we would see is this scenario writ large. It would be ordinary families who would bear the risk that programmes designed to tackle low pay, reduce rents, and connect the unemployed more effectively to the labour market fail to make sufficient progress; families whose lives would be constrained in ever-more oppressive ways; and families who would be further impoverished as a result. 

If Labour wants to rein in social security spending they have to do this by reducing need, not by rationing decency. But of course, whether social security expenditure really is out of control, as we are all incessantly told, is an entirely different question

A boy walks through the Heygate Estate in the Walworth area in London. Photograph: Getty Images.

Lindsay Judge is senior policy and research officer for the Child Poverty Action Group.

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR