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29 September

Who pays for Liz Truss and Kwasi Kwarteng’s mess? Welfare claimants, as always

The government’s giveaway to the rich may be matched by real-terms cuts to benefits for the poorest and most vulnerable.

By Anoosh Chakelian

In Tory England, all roads lead to austerity. As Liz Truss forges ahead with tax cuts for the richest, even as they wreck the UK’s economic integrity, her ministers hint at who will pay: welfare claimants, the low-paid and people who rely the most on public services.

Chris Philp, the Chief Secretary to the Treasury, has refused to confirm whether benefits will be increased in line with September’s inflation level next April, as was planned by Boris Johnson and Rishi Sunak. He is also writing to government departments asking them to make cuts. It’s austerity 2.0, and there’s nothing left to cut.

Even though the Prime Minister promised during her leadership campaign that she would not bring back austerity – “I’m very clear, I’m not planning public spending reductions,” she said – this was entirely predictable. In fact, it was already happening.

By saying she would use fiscal headroom (long since lost) to fund tax cuts, Truss was essentially signing off on a real-terms reduction in departmental budgets, which were being gobbled up by inflation. And it seemed the only cut that wasn’t a tax cut in the mini-Budget last week was to welfare: low-paid working people on Universal Credit will be forced to spend six hours longer a week from January searching for more or better-paid work, or face sanctions.

Yet Truss always knew how she would pay for her giveaway to the rich. Her public line was it would be funded by the proceeds of growth, but she is a small-state, low-regulation zealot – so shrinking the state even further would have been the ultimate vision.

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Kwasi Kwarteng is ideologically the same. When he came into parliament he called himself a “balanced budget Conservative”, and has always had a brutal view of welfare.

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In 2012, he chaired the Free Enterprise Group of Tory MPs – set up by Truss to oppose the “enormous expansion of the state which occurred during Labour’s years of government” – which advocated for freezing benefits in cash terms.

After George Osborne, the chancellor at the time, announced a 1 per cent cap on benefit rises, Kwarteng told me it showed that his backbench faction of neo-Thatcherites was “shifting the debate”. In an interview for Total Politics in 2013, he told me: “I was very clear early on that welfare was an issue which the Conservatives could own and win by making bold arguments and challenging the consensus. I think we’re right on that, if we talk about an honest day’s work for an honest day’s pay, if we bring back those ideas, that’s something we can win on.”

Two years later, in 2015, he suggested in a book, Time for Choosing: Free Enterprise in Twenty-First Century Britain, that benefits should instead be turned into repayable loans. He argued that young unemployed people should be forced to repay unemployment benefits upon getting a job. Shrinking the safety net was always his plan.

If benefits do not rise in line with the 10 per cent inflation of the autumn, the human impact will be devastating. Even with the government’s price guarantee, energy bills are about to double compared with last winter; councils are preparing “warm banks” to shelter people who would otherwise freeze at home. Food bank use has risen so much (up 14 per cent on pre-pandemic levels) that two-thirds of food bank managers are preparing to turn people away, or reduce the size of their food packages, according to the Independent Food Aid Network.

Already, work doesn’t pay for a record number of people – one in eight workers in the UK were in poverty even before the cost-of-living crisis hit, and let’s not forget that around 40 per cent of Universal Credit claimants have jobs. Without a rise in benefits, and with annual wage rises stubbornly below inflation (at an average of 5 per cent, excluding bonuses, and just 2 per cent in the public sector, say official statistics), in-work poverty will intensify.

For those out of work who rely on Universal Credit or legacy benefits entirely, the impact would be even starker. Disabled people, for example, whose energy costs are far higher than the average, are facing a £1bn shortfall in financial support by the end of the year because disability benefits have not risen in line with inflation, as analysed by my colleague Polly Bindman. That means additional costs of £367 to £505 a year per person.

A “reverse Robin Hood” plan to take benefits away from the low-paid and people who cannot work, while cutting taxes for the rich, would be politically difficult. “I just don’t think Conservative MPs would wear that,” David Gauke, the former Tory work and pensions secretary, told me.

“When we come to benefits, this is a time when living standards are falling sharply, particularly at the bottom end where expenditure on food and energy takes up a bigger proportion of expenditure than it does for those who are better-off,” he said. “To cut benefits at this time, while also apparently cutting the taxes of the highest-earning – you really don’t have to be someone on the hard left to think that is a pretty ghastly combination.”

He added that an attempt by the government to steady the markets entirely through spending cuts is “doomed to fail”.

After the pandemic, the British public has a greater appetite for public spending and redistribution, as well as a growing recognition of inequality. The austerity half of Truss and Kwarteng’s plans would have been a tricky sell to voters before the election due in 2024. Now it looks like they are having to reveal their hand earlier than they expected – and, as with the original austerity era, it is those with the least who will suffer most.

[See also: Liz Truss and the rise of the libertarian right]