£12 billion of benefit cuts will do a lot of damage
The new government starts work with commitments to benefit cuts that will be difficult to deliver but politically impossible to avoid. All the options open to the government will cause serious hardship but still won’t deliver the scale of savings the Chancellor wants. It’s very likely that one response to this problem will be to make life even tougher for claimants, whether they’re out of work or in low-paid jobs. The Saving Our Safety Net campaign is more important than ever.
One of the clearest pledges in the Conservative Manifesto was £30 billion of “fiscal consolidation”, made up of –
- £13 billion cuts to public services,
- £5 billion from reduced tax evasion, and
- £12 billion of benefit cuts.
Throughout the election campaign Prime Minister and Chancellor were pressed for details on how this going to be achieved and notoriously they always refused to give them. The manifesto only listed two measures that can be taken seriously as spending cuts:
- “We will freeze working age benefits for two years from April 2016, with exemptions for disability and pensioner benefits – as at present – as well as maternity allowance, statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory sick pay”
- “We will lower the benefit cap from £26,000 to £23,000”
During the election the Prime Minister also discussed cutting young people’s benefit entitlements. The most frequently mentioned version of this policy being to take Housing Benefit away from under-21s on Jobseekeer’s Allowance. The Institute for Fiscal Studies estimates that these policies would reduce spending by £2 billion, leaving £10 billion of benefit cuts still to find. (Though if inflation took off faster than expected over the next couple of years it might lead to the freeze producing significantly higher savings – and correspondingly increased misery.)
What might this look like? If you look at the Chancellor’s record so far, and the policy already announced on the freeze, it is very likely that pensioners’ benefits and some benefits for disabled people would be exempted; tax credits (and possibly Universal Credit) will be included. Now look at the forecasts for 2015/16 in the latest DWP Benefit expenditure and caseload tables; the government expects spending on all benefits and tax credits to be £210.8 billion, but over half of that – £116.7 billion – goes to pensioners, leaving £94.1 billion for people of working age and children.
The question of which disability benefits might be excluded is more complicated. If the government wants to avoid accusations of targeting disabled people, it would be very hard not to exclude Disability Living Allowance and Personal Independence Payment, the benefits that help disabled people cope with the extra costs due to being disabled Spending on these two benefits for children and people of working age is expected to total £10.4 billion – leaving spending totalling £83.7 billion to bear the cuts. The government does not treat Employment and Support Allowance in a consistent way, but the trend recently has been to treat ESA for people in the work-related activity group as an unemployment benefit, but ESA for people in the Support Group (people with the most severe impairments) as a disability benefit. Spending on Support Group ESA is expected to reach £9.7 billion in 2015/16. This would leave benefits worth £74.1 billion facing cuts of £10 billion – on top of the freeze and the lower Benefit Cap.
In short, if no groups are excluded from the cuts, £10 billion would reduce benefit and tax credit spending by a bit less than 5 per cent. But I would be amazed if benefits for pensioners are included in the cuts (I promise to eat something unpleasant and improbable if they are); excluding them would require remaining benefits to be cut by over 10 per cent. Excluding the most important disability benefits would require the remaining welfare budget to bear cuts of between 12 and 13.5 per cent – one pound in every eight! Or 16 per cent (nearly one pound in every six) if we include the freeze and lower benefit cap. One way of looking at this is to say that this is incredible, that the Coalition gave up on a smaller scale of cuts in 2012, and it simply is not going to happen. The IFS repeatedly hint that this is their view and Flip Chart Rick has blogged about “12 billion flying pigs”.
I don’t know if I agree with them. I certainly hope they’re right, but consider the damage failing to carry out these cuts would do to their case for austerity. The Chancellor has been talking £12 billion for two years now, it was in the Budget mood-music, not to mention the manifesto and the press will be hard on the government if they don’t deliver. If they don’t make these cuts and they don’t deliver tax cuts either their donors will be very angry.
What other working age benefits could be cut to save £10 billion? The key fact, and one that may come as a surprise to people who aren’t familiar with the benefits budget, is that you cannot do it by making benefits for unemployed people tougher. They are already too meagre for that and abolishing Jobseekeer’s Allowance would only cut spending by £2.4 billion.
An obvious target is Child Benefit (expected 2015/16 spend: £11.3 billion, but abolition would raise spending on means-tested benefits for children substantially). We’ve seen CB frozen and partly means-tested under the Coalition and, as I’ve mentioned before, the Conservatives have a long history of hostility to this benefit. Before the election there was some kite-flying in the Mail about restricting it to a maximum of three children. That sounds to me like the sort of option the government is very likely to have considered, but the savings would not be anywhere near the scale needed. Complete abolition might produce net savings (once the squeezing-a-balloon effect on other benefits is taken into account) of something like half the total the government wants. A wider campaign to discriminate against families with more than three children (already the big losers from the Benefit Cap) might be on the cards, though it would ironic if this policy was introduced by Britain’s best-known Catholic politician (number 18 on The Tablet’s Top 100 Catholics list).
Another likely target would be young people. There’s a Conservative mindset that believes young people only leave their parents’ home as a “lifestyle choice” that shouldn’t be subsidised by the benefit system. Withdrawing Housing Benefit from unemployed young people looks very likely and I wouldn’t be surprised if the upper age limit was 25, not 21. When the Thatcher government withdrew benefits from 16 and 17 year olds in 1988 there were teenagers sleeping on the streets within weeks and it would not come as a shock if this policy had a similar effect. Even so, I would be surprised if this policy cut spending by very much – quite a lot of young Housing Benefit claimants are disabled or pregnant or have children of their own and even the government’s enemies wouldn’t suggest that it plans to throw people like that into destitution; alternatives that are floated from time to time, like running hostels instead of benefits for young people who can’t be left on the streets would probably cost more than paying them HB. Further HB cuts are an inevitability – that’s what the reduction in the Benefit Cap amounts to – but the driver of HB spending is the shortage of reasonably priced housing to rent and the government doesn’t have any plans for dealing with that.
All of these cuts are horrible – remember that 73 per cent of the people hit by the Benefit Cap are children. But it’s worse than that because even these horrible cuts wouldn’t deliver the savings the government wants. If we look at which cuts have reduced spending the most over the past five years, the switch from uprating benefits by the Retail Price Index to the Consumer Price Index and the freeze in working age benefit rates have delivered savings that are measured in billions where other reforms are measured in hundreds of millions of pounds. Research last year for the Equality and Human Rights Commission found that, by 2015/16 the Coalition’s early decision to switch to CPI uprating was due to save £7.9 billion and the 1 per cent ceiling to uprating a further £4 billion. Unfortunately for the government, low inflation limits the savings that the welfare freeze – which only prevents real terms increases – can achieve; saving enough to reach the £12 billion target would require cuts in the cash value of benefits, cuts in benefit rates.
A further option will be cutting the support for low-paid earners. This would run counter to the government’s aim of “making work pay” and undermine claims to be on the side of hard-working families, but it could produce substantial savings. The proportion of Housing Benefit claims that are by people in work has been rising steadily and is now about one-in-four. A research report published by the TUC last August showed that, by 2016-17, over 90 per cent of the impact of cuts in tax credits – worth over £10 billion – would be felt by working families (indeed, 58.7 per cent of the cash value of all benefit cuts announced during the last Parliament hit low-paid working families).
Finally, one of the measures we can expect is a general toughening of benefit rules and regulations, a harsher attitude to people when they visit the Jobcentre, more families facing benefit sanctions. As we’ve noted before in this series, there has been a dramatic expansion in the use of benefit sanctions. In 2013/14 nearly one JSA claimant in five was sanctioned; more ESA claimants than ever before are being sanctioned. Vulnerable people are disproportionately likely to be sanctioned, including 100,000 children and 100 people with mental health problems every day. Food banks report that benefit sanctions are one of the main reasons families need to turn to this support. Increasingly, observers believe that the benefit rules are being used to push people round an obstacle course designed to discourage them from claiming benefits, not to help them get jobs. As it becomes clearer that the objective of cutting spending is hard to achieve by policy reforms so we can expect to see this harsh approach getting worse, causing more stress, anguish and hardship.
We all need to campaign against the forthcoming cuts and the TUC’s contribution will continue to be through Saving Our Safety Net. Saving Our Safety Net is the umbrella for campaigns to defend a welfare state that is there for all of us, including those of us who never use it but sleep sounder when times are hard, knowing that it exists. Workers facing redundancy, sickness, short-time working or maternity all face greater insecurity and a higher risk of deeper poverty if £12 billion of cuts are implemented. Low-paid workers face large cuts in their total income and people looking for jobs face a much more stressful existence. Saving Our Safety Net aims to persuade our fellow workers and trades unionists that the benefit cuts are a threat to all of us.
Sign the petition
Currently, the campaign is calling for the Secretary of State for Work and Pensions to follow the recommendation of the Work and Pensions Committee to urgently review and reform the sanctions system. The petition has just over 9,000 signatures. We want 10,000 before we send it to Iain Duncan Smith. Please take 30 seconds to sign it.
Postscript: 1.30 pm – The Queen’s Speech doesn’t really help us understand how they are going to achieve £12 billion of benefit cuts. It includes a Full Employment and Welfare Benefits Bill, which will include measures we were expecting, including a freeze of the main rates of most working age benefits, tax credits and Child Benefit for two years from 2016-17 (so the first increase would take place in 2018 and presumably would be announced in the 2017 Budget) lowering the Benefit Cap to £23,000, and for under-21s replacing JSA with a new Youth Allowance with no “automatic entitlement to housing support”. As I’ve indicated above, this list isn’t likely to cut benefit spending by £12 billion, presumably the Budget due on 8 July will address this, once the government’s internal arguments have been sorted out.