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Osborne's welfare cap is a poverty-producing policy

The UK is far more reliant than other European countries on social security spending to reduce child poverty.

A race to the bottom.
Children's clothing is hung out to dry on a residential development in Tower Hamlets. Photograph: Getty Images.

Yesterday the good news for poorer families, today the bad: what the government gives with one hand, it will now take away with the other. Although the news cycle paid them little attention in the childcare melee, low income parents did well from yesterday’s announcement. In the future, they will receive support with 85 per cent of their childcare costs, increasing their work incentives and reducing their costs. But there was a sting in the tail: as the government’s statement made clear, the funds for this change must come out of the existing DWP budget, "in line with the principles of the welfare cap".

The government likes to use high-blown language to gloss the cap, the mechanism through which the Chancellor has today placed a permanent lid on the social security spend. In the Treasury’s view, this strategy is full of virtues – it ensures fiscal probity, improves transparency, and brings us into line with international best practice. But the truth is quite different: the cap is a poverty-producing policy that could set us on course for some of the highest child poverty rates in Europe.

It’s worth looking at the poverty data to understand the full implications of the policy. This shows just what a bad place we start from in the UK with respect to child poverty, with the second highest rates in Europe before tax and transfers are taken into account. Unquestionably, social security has to do a lot more heavy lifting here than it does in other comparable countries.

But this should lead us to an obvious conclusion: that we need to do more about the underlying structural determinants of poverty such as low pay, precarious work, high housing costs and childcare support if we want to reduce the significance of social security as a poverty reduction policy. Instead, simply rationing social security as the Chancellor has done through the "welfare cap" potentially exposes millions more children to the risk of poverty in the UK. But the figures also tell us something else important: that even in those countries with the most propitious starting points, social security remains an essential part of the poverty reduction toolkit.

Yet the coalition has cut almost a fifth from the working age social security budget over the course of this parliament, and it is families with children who have borne the brunt of this retrenchment. Analysis by the Institute for Fiscal Studies "nowcasts" that an additional 300,000 children live in poverty compared to 2010, and a further 150,000 will be impoverished by the end of the parliament. And the primary reason for these increases? Cuts, cuts and yet more cuts.

The cap locks in these cuts for perpetuity and denudes future spending decisions of any ambition. Want to improve work incentives through changes to Universal redit? Sure – but you have to cut elsewhere. Want to ensure people with disabilities can participate fully in society? Yes – but another group will take a hit. Think it’s a good idea to end child poverty? Why not - but others will be impoverished in the process.

The cap closes the system, pitting the needs of the most vulnerable against each other in an endless zero-sum game. Osborne may talk about the race to the top for the country today, but for the poorest, the race to the bottom begins now.