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  1. Economy
9 July 2021

How much austerity are the Conservatives prepared to impose?

The planned cut to Universal Credit will be a test of the Tories’ willingness to make painful spending reductions.

By Stephen Bush

Will the Conservatives break their manifesto promise over the triple lock pension? Rishi Sunak has hinted that it might in a series of interviews. And will the Conservative government really end the £20-a-week uplift in Universal Credit? More government ministers than you can shake a stick at have said that it will. 

The two policies aren’t all that comparable: the Office for Budget Responsibility’s forecast that the state pension may rise by 8 per cent next year is a consequence of the pandemic’s effect on earnings growth: both lockdown and its easing will create an artificially high rate and, with it, a higher than expected increase in the state pension. (The triple lock, don’t forget, means that the state pension goes up by whichever is the highest: average earnings, the annual inflation rate or 2.5 per cent).  

You can argue this one both ways: either you say, well, the future is unpredictable, and the point of the triple lock is to increase the state pension so it gets closer to the European average and eliminates pensioner poverty. A freakish year for increasing the triple lock may well be followed by a freakish year in the other direction, and it’s not really worth worrying about. Or you can say, look, when former pensions minister Steve Webb introduced the triple lock he did not envisage a lockdown and a pandemic: simply increase this year’s state pension based on a two-year average.

[see also: How Universal Credit is one of the least generous welfare systems in Europe]

That latter argument is why the response to Sunak has been relatively muted among Conservative MPs and much of the press. The looming cut in Universal Credit is a very different proposition. It would leave six million households around £1,000 a year worse off, will be particularly painful for the United Kingdom’s lowest-paid households, and will take effect at exactly the moment that unemployment is expected to spike. Added to that, because 37 per cent of people on Universal Credit are in work, if the initial exit from lockdown is patchy and sees people being given reduced hours, the welfare system will need to do more, not less, heavy lifting to boost wages.  

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It is the first genuinely painful spending cut that the Conservatives are planning to impose when we exit the pandemic, with many more to come, given how many there are in the implied spending framework laid out in Sunak’s Budget. In many ways, the central question of British politics for the next few years will be whether or not those very painful cuts happen: what happens to British society if they do, what happens to the Johnson-Sunak relationship if they are implemented, what happens to the Johnson-Sunak relationship if they aren’t, and whether the Tory party’s political difficulties in delivering its planned cuts from 2015 onwards have been eradicated thanks to a new justification in the shape of the pandemic. 

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[see also: How Boris Johnson escaped the blame for Tory austerity – and what Labour can do about it]