From the TUC

Brexit and social security – we need a debate on the trade union response

05 Jul 2016, by in Society & Welfare

What will leaving the European Union mean for social security policy in the UK? In this post I’m going to explain why we should prepare for social security cuts as part of any move to introduce a new austerity. In a few days I hope to return to this subject and look at some of the arguments we can use.

The TUC has already hit the ground running with our national action plan demands and its concrete steps to protect jobs, industries and employment rights – I can’t emphasise too strongly how important it is for trade unionists to get out and support it. We also need to develop our own position on the welfare state so that a new Prime Minister can’t impose a reactionary resolution of the crisis and claim that there is no alternative.

The context for this discussion is that leaving the EU will almost certainly damage the real economy and public finances with it. The Price Waterhouse pre-referendum report for the CBI forecast unemployment rising to 7 or 8 per cent in the next 3 or four years, compared with the current rate of 5 per cent – which would translate to an increase in the range 600,000 to 1 million. This week ratings agency S&P forecast that UK GDP growth will be 1.2 per cent lower in 2017 and 1.0 per cent lower in 2018 even if the UK still has access to the single market in both those years. The fall in value of the pound is likely to push up inflation – at the end of June the Bank of America Merrill Lynch forecast inflation of 3 per cent by the end of the year, 3.7 per cent by the end of 2017. Immediately after the vote an Institute of Directors survey found that 29 per cent of businesses said they would freeze recruitment or make redundancies, 36 per cent planned to cut back investment and 22 per cent were considering moving some operations out of the UK.

Mark Carney put it in very measured terms today: “the UK has entered a period of uncertainty and significant economic adjustment.” This process of adjustment will include major problems for the public finances – the increase in unemployment and lower family incomes will mean that there is more need for the welfare state, but the fall in GDP will mean that the government’s revenues will fall– the Social Market Foundation estimated a shortfall of £8 billion this year and £26 billion in 2017.

In a crisis like this, previously settled policies can be abandoned very quickly. George Osborne has already abandoned the plan – only announced last June – to achieve a budget surplus by 2020. Whatever you think of the policy itself (Geoff demolished it at the time) Conservative economic credibility at the last election rested on this issue, and the Chancellor has just thrown that advantage away. This means that we need to be ready for major changes even if previously they might have been thought politically impossible. The debate during the referendum focused on NHS spending so I think health cuts are probably off the table, which makes benefit cuts even more likely.

Some of the possibilities could include mothballing Universal Credit (if Iain Duncan Smith doesn’t return to the cabinet), reinstating the tax credit cuts originally planned for the next few years or “tweaking” the pensions triple lock, despite the promise to maintain it till 2020. Going on past performance, greater conditionality in disability benefits, further tightening of the Benefit Cap and cuts in benefits for young people are distinct possibilities. What looks very unlikely is any retreat from freezing benefits for non-pensioners till the next election – even though the likely result will be further increases in child and adult poverty. When I come back to this subject I want to look at some arguments we can use to oppose cuts like this.