The chancellor has targeted working-age welfare benefits in his drive for more cuts after the next election. But do the sums add up, politically or economically?
This week, the chancellor George Osborne announced that the Conservatives would be seeking to make a further £12bn cuts to welfare spending in 2016/17, should they win the 2015 general election. This is on top of the £18bn annual reductions in welfare achieved in 2015.
Removing housing benefit eligibility for the under 25s - and means testing it for those earning more than £60k per year - were given as the primary methods of generating this £12bn reduction. While these two ideas were mooted by the prime minister last year, the chancellor’s announcement – formalising these as election pledges with a price tag attached – caused alarm not only among the Liberal Democrats but within the Conservative party itself.
Tensions between Iain Duncan Smith and George Osborne, and the officials in their respective departments, the DWP and HMT, have been rising for a few years now. Osborne is – as his job requires – playing a numbers game. The welfare bill remains a big chunk of overall spend (although much of this is attributed to pensions, often conveniently overlooked) and is rising, thanks to unemployment, low pay and spiralling rental prices. It is an obvious target for Osborne’s search for cuts, and easier to achieve than, say, sniffing out efficiency savings in already streamlined departmental budgets. Simply restrict eligibility for a benefit here, time limit one there, and Bob’s your uncle – a couple of billion pounds is back in government coffers.
But this approach has always jarred with IDS’s motivation and accompanying narrative for welfare reform, focused on ending benefits dependency, changing behaviours and incentivising work. Removing housing benefit for the under 25s is an arbitrary, age-based policy, driven by Osborne’s pursuit of what can be cut off, rather than IDS’s quest for what can be achieved. And as one senior DWP official leaked to the Times, 'You can’t keep hacking at the same people.' – suggesting IDS thinks he’s already done his bit for Osborne’s deficit reduction strategy.
Moreover, evidence isn’t on the chancellor’s side. The IFS and other economists have suggested that the two welfare cuts specified are likely to cut spending by around £2bn – leaving a stray £10bn of benefits to cut. Many commentators have asked what IDS and his officials are no doubt thinking – 'where will the rest come from?'
The Conservatives have already ruled out taking this from pensioners. This has led Nick Clegg – whose party has been in favour of ending some of the universal benefits for pensioners such as the Winter Fuel Allowance – to describe Osborne’s announcement as a 'monumental mistake' and a 'lopsided, unbalanced approach' by continually cutting from the working age population while protecting well-off pensioners from any reductions in benefits.
Moreover, critics have also pointed out that many under 25s use housing benefit to move to urban areas to work – particularly important for those whose parents live far afield. Many more will be renting because they simply cannot live at home, due to family breakdown or violence. Would exemptions be made for parents under 25? What about those from foster families, who may have left care years earlier? There are plenty of reasons why under 25s cannot simply move back in with their parents, as the prime minister glibly suggested they do when first proposing this cut. A few parents simply won’t be able to take their children back – as they have given up their larger properties with spare rooms due to the Bedroom Tax. The irony will be of little relief.
So this policy could shape up to be a lose lose – it won’t cut enough for Osborne’s targets, and it’s unlikely to tick IDS’s boxes of incentivising work. Indeed, some young people may be pushed out of work, as they simply cannot afford to live in the economic growth areas where they are currently working their way up the career ladder.
For local authorities, Eric Pickles’ warning regarding the negative effects of the Bedroom Tax will also hold true for this policy: arrears, eviction, homelessness, overcrowding and the subsequent burden on health, emergency payment and support services will surely increase. This will have the added complication of the cohort in question being younger, possibly vulnerable, and finding it harder in the job market due to a lack of skills or experience.
But is there an alternative? For Osborne, there are few. His party is restricted both by its low tax impulse and its pledge to protect pensioners – a pledge which, while popular, may not stand the 'fairness' test when the public are presented with a zero-sum game between millionaire over-60s keeping their Winter Fuel Allowance and 24 year olds starting out on the career ladder having to give up jobs and move out of towns.
The Lib Dems have neither constraint, and have indicated that both taxes on the wealthy and more means testing for pensioner benefits would be considered before more working age benefit cuts. In the run up to the election, it’s likely such differences of opinion and policy will be made more of rather than papered over as in previous rows.
But while the two coalition partners are locked in this benefits argument, Labour may be gaining ground by increasingly talking about building houses as a welfare reduction strategy. The explosion in housing benefit claims – seen particularly among working households – is due to the mismatch of low wages and high rents. A living wage and increasing the supply of homes are the sustainable solutions being advised by policy wonks of all political persuasions.
In the race for an appealing manifesto package, the question is which - if any - of the three parties will lead with these larger, but slower reductions to welfare spending, and which will be tempted by the short term popularity and long term hardship of further benefit cuts?
