Iain Duncan Smith. Secretary of State for Welfare Pensions. Still. Photo: Getty Images
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What would real welfare reform look like?

Britain's welfare bill can be reduced without eliminating the safety net - but not with a series of crude caps or freezes, explains Spencer Thompson.

Today’s public finance statistics show progress towards reducing the deficit. Net borrowing has fallen by almost a quarter on a year ago, partly driven by better than expected income tax figures. But the Chancellor of the Exchequer will not be able to reach his fiscal targets with a few months of above-average receipts. Indeed, outside of its claim that £5bn can be raised from tax avoidance, the government’s so-called ‘tax lock’ will largely prevent him from using tax levers to close the deficit. Instead, he is going to have to cut deep into public services and the welfare bill in order to come up with the required savings. The upcoming budget and subsequent spending review, where we will get more detail on his plans, are where the real business of deficit reduction will happen.

The centre-piece of the Chancellor’s fiscal strategy is an aim to cut a sizable chunk (£12bn) off the welfare bill by 2017/18. The options floated so far, of a freeze in the value of working-age benefits, a reduction in the benefit cap and the withdrawal of housing benefit from 18-21 year-olds, are likely to save only a little over £1bn. That leaves more than £10bn of welfare reductions unaccounted for. Even if the chancellor were able to reduce this figure by arguing that low inflation has reduced the need for cuts, this may also impact on the OBR’s receipts forecasts, meaning they are still going to need huge savings.

The UK currently spends around £220bn on welfare. Just less than half goes towards pensioners and child benefit, both declared off-limits by the government. This means that the cuts will need to make significant in-roads into the remaining £113bn, of which the largest items by far are tax credits (£30bn), housing benefit (£26bn), disability benefits (£22bn) and incapacity benefits (£15bn). Some combination of cuts to these benefits will be required if the government are to achieve their £12bn target. Focusing exclusively on out of work benefits wont cut it – we currently spend just £5bn a year on jobseeker’s allowance and income support, the two key working-age benefits for those not in a job.

The IFS have taken a look at some of the specific choices the government could make to these benefits to generate savings; the government could require housing benefit claimants to contribute 10 per cent of private sector rents (a saving of £0.9bn), or they could abolish housing benefit for all 18-25 year-olds (saving £1.5bn). If they started to tax the key disability benefit (formerly Disability Living Allowance, now the Personal Independence Payment), they could raise £0.9bn. More sweeping changes could generate larger savings; if they reduced the basic amount of child tax credit families can claim to its 2003/04 levels (in real terms), they could save £5bn.

If these options sound harsh, that’s because they are. Every pound saved will be a pound in lost income for an eligible family, with predictable consequences for living standards and child poverty. While these options may be presented as generating incentives for families to move into work, remember that around 80 per cent of benefits outside pensions go to families in work, meaning that cuts are likely to hit the working poor. But it is changes of the kind listed above that the DWP and Treasury will currently be looking at in their search to identify savings. If, as has been rumoured this week, they are exploring a further £3bn of welfare cuts on top of the £12bn already mooted, the impact will be even more severe.

IPPR has argued consistently that the working-age welfare bill can be sensibly controlled, but not by a crude process of freezing or cutting entitlements. This does nothing to combat the economic and demographic forces acting to increase demands on the welfare system; rising rents increase the need for housing benefit to paper over the cracks in our broken housing market, endemic low pay inflates the tax credit bill, and the need for both parents to work in order to reach a decent standard of living puts upward pressure on the price of childcare to meet caring needs. There are more examples, but the overall picture is of a system that does little to tackle the underlying causes of welfare receipt.

Instead what are needed are very difficult choices about where public funds are best spent. Rather than lining the pockets of landlords through housing benefit, we should be unlocking those same funds to invest in social housing. Similarly, instead of topping up the pay of working parents so they can afford extortionate childcare fees, we should recognise the need for more hours of cheap or free childcare at all ages. Across a range of policy issues, we throw good money after bad instead of investing in more sustainable solutions for the long-term.

Realising these opportunities to switch money from cash welfare into services and investment requires some long-term leadership and vision from policymakers. The upcoming spending round represents a perfect opportunity to be thinking of creative solutions to reduce the welfare bill in a way that is both fair and sustainable. But the overwhelming focus on cutting to meet a self-imposed target of a balanced budget by 2017-18 is likely to take precedence over genuine reform.

Spencer Thompson is economic analyst at IPPR

Photo: Getty Images
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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.