What is going to happen to universal benefits?
If the government is indeed going to announce restrictions on ‘universal’ benefits it won’t come as a bolt out of the blue. The Budget froze Child Benefit for three years and the re-testing of Disability Living Allowance claims is supposed to cut back the number of people receiving the benefit by one fifth. The leaks about Winter Fuel Payments and Child Benefit would therefore represent a continuation of a policy trend that is already established.
How far will they go? The BBC reports a government spokesperson saying that the restrictions will fall short of means-testing benefits that are currently universal. But it’s hard to see how that will produce the savings needed:
- The reforms Iain Duncan Smith has been hatching for the past three years will cost, by his calculations in 2007, more than £3.5 billion – and my guess is that this was an under-estimate.
- The Chancellor will expect DWP to make savings that not only cover this expense, but also make a contribution to the massive reduction in public spending. After all, social security accounts for a third of the total, and if it doesn’t play a large part in the cuts the rest of Whitehall will be worse hit.
- Indeed, if the Department for Work and Pensions faces the same 25 per cent cuts as government overall, that implies something in the order of £35 – £40 billion. The £11 billion of cuts announced in the Budget would amount to less than a third of this.
- Expenditure on Winter Fuel Payments is a little under £3 billion a year; Disability Living Allowance is around £12 billion (the forecast for 2010/11 is just under that) and on Child Benefit about the same (£11.2 billion in 2008/9). Restrictions on these benefits sufficient to make up the shortfall will have to be severe – if it isn’t means-testing, it may be hard to tell the difference.
Interestingly, the Liberal Democrats may be more gung-ho than the Conservatives. During the election millions of viewers will have seen Mr Cameron angrily deny that he planned to cut Winter Fuel Payments and free TV licenses. On Newsnight, Philip Hammond promised:
“We have made a decision to rule out means testing child benefit. … The universality of child benefit is really important to people, it reassures them about the availability of that benefit.”
At the 2009 Conservative Conference Mr Osborne promised:
“We will preserve child benefit, winter fuel payments and free TV licenses. They are valued by millions.”
The Liberal Democrats, on the other hand, have been ambiguous on the subject. The Telegraph reports “Nick Clegg backs benefit cuts” and he floated the possibility of the Liberal Democrats supporting the means-testing of Child Benefit in the run up to last year’s Liberal Democrat conference. At the same time, Vince Cable wrote a pamphlet on Tackling the Fiscal Crisis, where he argued:
“The simplest reform could be to taper the family element in tax credit which the Institute for Fiscal Studies estimates could raise £1.35 billion. This should occur. A more radical reform would be to target child benefit by assimilating it into tax credit. David Davis MP and others have advocated this approach. It is certainly incongruous to many people that the very rich receive child benefit. The IFS estimates that £5 billion or more could be saved by no longer making child benefit universal. The implication, however, of the tapering of child tax credit and the loss of universal child benefit, would be a loss of income for some middle income families. Such a reform would be easier to make if income tax were cut for standard rate payers. I favour making this reform in principle, but more work needs to be done on how to manage offsetting tax cuts.”
What is more, in the same Newsnight programme where Philip Hammond ruled out this policy, Mr Cable refused to follow suit.
One possible conflict that might develop is within the Liberal Democrats. As Next Left has pointed out, in September, Steve Webb – who understands the problems that a move to means-testing would cause – quickly announced that, as Work and Pensions spokesperson, he had reviewed the policy and rejected it. Could he bear to argue for a policy he rightly dismissed less than a year ago? But, as a DWP minister, he could hardly avoid doing so – will he fight his corner (probably against colleagues in his own party as well as the Conservatives)? Or will he resign? Or swallow his pride (amongst other things)?