George Osborne stands with his Treasury team before the Budget. Photograph: Getty Images.
Show Hide image

The coalition's welfare cap puts politics before policy

Osborne has failed to design the cap in a way that will advance structural reforms to housing and wages.

As expected, today’s Budget included further details about the long-trailed "welfare cap". A rough calculation suggests it will cover over 90 per cent of benefit and tax credit expenditure, excluding the Basic State Pension, with only those most cyclical elements, linked to Jobseeker's Allowance left outside. Interestingly, the extra childcare support announced by the government yesterday will fall within its scope.

Most significantly, the Chancellor set the level of the cap, which in the first instance will simply track the current OBR projections for spending on those benefits and tax credits in scope (starting in 2015/16 and extending over the following five years). This reflects coalition reality: the Liberal Democrats have long signalled their unwillingness to sign off further social security cuts that would have been required to set a cap below the forecast. This means that, for now, the "cap" has no policy effect: the government is simply committing to operate future policy on the basis of not overshooting the (current) estimate for welfare spending over the coming years.

Of course the real political impact of today’s announcement will come as the general election draws closer. It is a racing certainty that the Conservatives will pledge to lower the cap in their manifesto, to make room for tax cuts, faster deficit reduction or even (if they wanted to make life particularly difficult for Labour) an increase in NHS spending. They will hope to paint both the other main parties as defenders of higher welfare expenditure, which polls tell them is unpopular with large sections of voters.

Labour has already taken steps to protect itself against this well-telegraphed political move, by highlighting how working families would be in the front line of further assaults on benefits and tax credits and that a plan for generating genuine savings (not just arbitrary cuts) requires reforms that address the structural drivers of social security spending – like unemployment, low pay and an inadequate supply of affordable homes.

Given this goal – shifting the balance of expenditure from the "costs of failure" to productive investments – the principle of a "welfare cap" should not be dismissed out of hand. The Chancellor is right to say that there is currently little strategic decision making about social security spending and little attention is paid to (or action following from) expenditure overshooting the forecast.

To take the most egregious example: the large rises in Housing Benefit expenditure in the twenty years before the financial crisis, at a time when the number of households receiving help to pay the rent stayed broadly flat, should have triggered a major focus on those trends, leading to serious reform of policy and spending. It did not – and the consequence was extreme vulnerability of the benefits system to an economic shock, with large numbers of people in more expensive private rented accommodation. When the crisis hit, Housing Benefit shot up and in response we have seen a series of arbitrary attempts to hack back costs (like the "bedroom tax") which are entirely unrelated to the causes of rising expenditure in the first place.

Given the medium-term pressure on the public finances, forcing more strategic decision making about welfare spending is essential. But in this context, the Chancellor has today lent too heavily on the political dividing line and not enough on designing the cap in a way that would advance structural reforms. While set over five years, on a rolling basis, the government’s cap will "bite" on an annual basis, with an OBR warning about overshooting in an Autumn Statement requiring compensating action in the following Budget. This will drive emergency cuts, not long-term savings. Also, what was sorely lacking today was any serious analysis from the OBR about the trends and drivers of welfare spending, which is vital for policy makers and the public to understand the factors underpinning why expenditure is rising (or falling).

Two other points are worth noting. First, the cap has been set in nominal (cash) terms. This means that higher expenditure driven by inflation will trigger policy action, which risks locking in lower living standards for those reliant on benefits. General prices rises, feeding though into uprating decisions, does not count as a structural driver of spending. The Chancellor set out a "margin of error" of two per cent around the forecast which will not trigger action. This is in line with forecasts for CPI over the forthcoming years.

Second, the cap makes no distinction between contributions-based and incomes-based benefit spending, consistent with the drift of social security policy over the last three decades. However they are different and should be treated so. Entitlement to contributory benefits should stand outside the mainstream of government revenues, with its financing secured by National Insurance Contributions. Taking National Insurance benefits out of the cap and strengthening the integrity of the National Insurance Fund could play a big part in advancing political aspirations to restore the contributory principle in the years ahead.

Graeme Cooke is Associate Director at IPPR

Getty
Show Hide image

The Randian Republican who could rein in Trump isn’t a coward – he’s much worse

Paul Ryan's refusal to condemn Trump is not caused by terror or fear; rather, it is a cynical, self-serving tactic.

Poor ol’ Paul Ryan. For a few brief hours on 27 January, a week after the inauguration of Donald Trump, the Wikipedia entry for “invertebrates” – which defines them as “animals that neither possess nor develop a vertebral column (commonly known as a backbone or spine)” – was amended to include a smiling picture of the Republican Speaker of the House of Representatives.

The online prank reflected a growing consensus among critics of Ryan: confronted by a boorish and authoritarian president plagued by multiple conflicts of interest, the House Speaker has behaved in a craven and spineless manner. Ryan, goes the conventional wisdom, is a coward.

Yet as is so often the case, the conventional wisdom is wrong. Ryan’s deafening silence over Trump’s egregious excesses has little to do with pusillanimity. It’s much worse than that. The House Speaker is not a coward; he is a shameless opportunist. His refusal to condemn Trump is not caused by terror or fear; rather, it is a cynical, self-serving tactic.

Long before Trump arrived on the scene with his wacky “birther” conspiracies, Ryan was the undisputed star of the GOP; the earnest, number-crunching wunderkind of the right. He was elected to Congress in 1998, aged 28; by 2011, he was head of the House budget committee; by 2012, he was Mitt Romney’s running mate; by 2015, he was Speaker of the House – and third in line for the presidency – at the grand old age of 45.

The Wisconsin congressman has been hailed in the conservative media as the “man with a plan”, the “intellectual leader of the Republican Party”, the “conscience” of the GOP. Yet, again and again, in recent years, he has been singularly unsuccessful in enacting his legislative agenda.

And what kind of agenda might that be? Why, an Ayn Rand-inspired agenda, of course. You know Rand, right? The hero of modern-day libertarians, self-described “radical for capitalism” and author of the dystopian novel Atlas Shrugged. As one of her acolytes wrote to her: “You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your condition which you simply take for granted you owe to the effort of men who are better than you.”

Ryan is an ideologue who insists on giving copies of Atlas Shrugged to interns in his congressional office. In 2005 he told a gathering of Rand fans, called the Atlas Society, that “the reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand”.

Rolling back the evil state while balancing the budget on the backs of the feckless poor, in true Randian fashion, has always been Ryan’s primary goal. Even Newt Gingrich, who served as Republican House Speaker for five years in the 1990s, once decried Ryan’s proposals to privatise Medicare ­– the popular federal health insurance programme that covers people over the age of 65 – as “right-wing social engineering”.

These days, Ryan has a useful idiot in the White House to help him pull off the right-wing social engineering that he couldn’t pull off on his own. Trump, who doesn’t do detail or policy, is content, perhaps even keen, to outsource his domestic agenda to the policy wonk from Wisconsin.

The Speaker has made his deal with the devil: a reckless and racist demagogue, possibly in cahoots with Russia, can trample over the law, erode US democratic norms and embarrass the country, and the party, at home and abroad. And in return? Ryan gets top-rate tax cuts. To hell with the constitution.

Trump, lest we forget, ran as an insurgent against the Republican establishment during the primaries, loudly breaking with hard-right GOP orthodoxy on issues such as infrastructure spending (Trump promised more), health-care reform (Trump promised coverage for all) and Medicaid (Trump promised no cuts). It was all a charade, a con. And Ryan knew it. The Speaker may have been slow to endorse Trump but when he did so, last June, he made it clear that “on the issues that make up our agenda, we have more common ground than disagreement”.

A year later, Ryan has been vindicated: free trade deals aside, Trump is governing as a pretty conventional, hard-right conservative. Consider the first important budget proposal from the Trump administration, published on 23 May. For Ryan, it’s a Randian dream come true: $800bn slashed from Medicaid, which provides health care to low-income Americans, plus swingeing cuts to Snap (the Supplemental Nutrition Assistance Programme, aka food stamps), Chip (the Children’s Health Insurance Programme) and SSDI (disability insurance).

In Trump, Ryan and his fellow anti-government hardliners in Congress have found the perfect frontman to enact their reverse-Robin Hood economic agenda: a self-declared, rhetorical champion of white, working-class voters whose actual Ryan-esque policies – on tax cuts, health care, Wall Street regulation and the rest – bolster only the billionaire class at their expense.

Don’t be distracted by all the scandals: the president has been busy using his tiny hands to sign a wide array of bills, executive orders and judicial appointments that have warmed the cold hearts of the Republican hard right.

Impeachment, therefore, remains a liberal fantasy – despite everything we’re discovering about Russia, Michael Flynn, James Comey and the rest. Does anyone seriously expect this Republican-dominated House of Representatives to bring articles of impeachment against Trump? With Paul Ryan in charge of it? Don’t. Be. Silly.

Mehdi Hasan is a broadcaster and New Statesman contributing editor. He is based in Washington, DC

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

0800 7318496