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13 December 2016updated 30 Jul 2021 7:18am

There is a smarter way to keep welfare spending down

Housing benefit and tax credits subsidise exploitative landlords and employers

By Debbie Abrahams

Never has a government been so adept at failing its own tests. Late on Monday, we added the Tories’ welfare cap to their pile of broken promises. A red-faced minister had to stand and explain to us why it is that they will spend more than their self-imposed limit on social security in every one of the five years of this parliament. 

This is a far cry from 2014, when George Osborne, then the Chancellor, announced his cap with glee. Mr Osborne proclaimed that:

“The welfare cap marks an important moment in the development of the British welfare state…and ensures that never again can the costs spiral out of control.”

But the welfare cap has in fact only served to highlight the failure of his own government on both the economy and social security. 

How has this been allowed to happen? The Conservatives point the finger at sick and disabled people for the rise in spending. They are still shamelessly spinning their tired “shirkers” and “strivers” narrative, designed to whip up public support for cuts to the most vulnerable. But this divisive rhetoric can no longer conceal the fact their economic strategy has failed. It is the government’s failure that has led to rising social security costs. 

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As we saw at the Autumn Statement, borrowing is up, growth is down, deficit targets have been hopelessly missed and wages have flat-lined. At the same time, the government has refused to tackle the driving forces behind increased social security spending, from low pay to high housing costs. Instead, the government is slashing support to those who need it most, exacerbating the financial strain so many are facing this Christmas, and failing its own targets in the process.   

Take housing for example. We are spending more than £20bn a year, every year on housing benefit, nearly half of which goes straight into the pockets of private landlords. All the while the government’s own figures show that the number of affordable homes built has slumped to a 24 year low.

Research by the Joseph Rowntree Foundation suggested that we need to be building 80,000 affordable homes a year to meet demand and keep the current spend on housing benefit stable. This government managed a pathetic 30,000 homes last year. It is this refusal to build enough homes that keeps the housing benefit bill growing. People are left struggling to find somewhere affordable to live, and the state is forced to subsidise the sky-high rents charged by private landlords 

We could also look at tax credits, which currently make up more than £20bn a year in the spending under the cap. Tax credits top up working people’s pay where it is insufficient. Wages today are lower than they were in 2008, and won’t even return to the levels of 2008 until 2021. A record six million workers are paid less than the living wage. This is why tax credit costs have risen – because the government has had to increase the amount spent on topping wages up. 

Labour founded the welfare state to give pensioners and disabled people dignity, to prevent homelessness, children going hungry, and to cover for periods of unemployment or ill-health. It was never designed to be spending tens of billions substituting for low-wage employers or subsidising rip-off landlords. 
So Labour would set the minimum wage at the level of the living wage, expected to be £10 per hour by 2020. We’d invest in housing, building at least a million over the course of a parliament, with half council or social homes, to bring down the housing benefit bill. 

Finally, the government’s abject failure to tackle the disability employment gap has left them spending more on out of work support for disabled people. The Tories committed to halving the gap, but it actually increased at the end of 2015. Ministers this week claimed that this promise “did not have a specific time commitment”. 

Research by the Resolution Foundation shows that ensuring that disabled people are able to stay in work is just as important as helping those who are unemployed to find a job. Roughly 350,000 people had to stop working last year because of health reasons. Keeping disabled people in their jobs is clearly a more effective strategy to bring down social security spending than slashing support. 

It is the failure to take a common sense approach that has left the Tories’ welfare cap lying in tatters, and an embarrassed minister making excuses to the Commons on Monday. The government’s slash and burn economic strategy has failed. Instead, we must tackle the structural problems driving social security spending. This way we can ensure that, like the NHS, the social security safety net remains there for us all in our time of need. 

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